Inheritance tax is simply the tax levied on the estate when the owner of the estate dies. Savings, properties, and any other kind of assets come under the estate and from this the funeral value and debts can be removed.
When the owner of an estate dies and if he or she wants to pass on the assets to his or her heirs, they must pay the inheritance tax. Due to the inheritance tax, there would be a difference in the estate they receive at the end. If you want to reduce the inheritance tax or want to prevent it, you must contact a tax advisor.
You need not pay any inheritance tax in the below cases.
- If the estate value falls under the threshold of £325,000.
- If you leave your estate that comes above the threshold of £325,000 to your civil partner or spouse or charity.
As the rules related to tax keep on changing from time to time, it is better to contact a tax advisor to know about it. This tax would be usually 40% on everything that comes above the threshold of £325,000.
For example, if the value of the estate that is left behind to heirs is £500,000 then the tax that the heirs have to pay would be around £70,000. This means the tax is calculated on £500,000 – £325,000 = £175,000.
You can always contact reputed tax firms like PMW for tax advice. They can also help you with investment management and wealth management too.
Image Credit: https://www.istockphoto.com/photo/busines-using-a-computer-to-complete-individual-income-tax-return-form-online-for-gm1335050708-416941400
How to avoid inheritance tax?
- If you want to avoid the IHT (Inheritance Tax), the first thing you must do is prepare a will. If someone passes away without making a will, the left assets will be distributed to the legal heirs as per the law and IHT can be applicable in this case.
- If you give away a minimum of 10% of your total assets, the IHT on the remaining assets can be reduced to 36% from 40%.
- If you leave your property to your civil partner or spouse, after your death, IHT will not be applicable. In this case, your property value will not be considered. But if you are planning to give away your property to somebody else, and mention the same in your will, the IHT would be applicable.
- Tax advisors know what to do to reduce or prevent IHT. Hence, it is better to hire one from a reputed tax firm.
- If you put your assets in a trust, they will not be considered anymore as the estate. This means, NO IHT is applicable for the same. When it comes to the trusts they can assist you in passing on your assets to your grandchildren or children as per your requirement.
- After earning so much if you live with a tight budget when you become old, it is meaningless. As you have worked hard, enjoy after you retire from your work. Spend the excess money and avoid the IHT.
Whatever questions you have related to IHT, contact a tax advisor immediately!