Inheritance Tax (IHT) becomes an issue when someone dies. It is a one-off tax paid on the value of the deceased’s estate above a set threshold – (£325,000 and in 2021), the tax due was 40% of any value over that threshold. The executors of the estate will sum up the value of all of the assets, subtract any debts, bills and funeral expenses to work out how much IHT needs to be paid.
If you leave a married or civil partner, they can inherit your entire estate without facing any IHT bill. So if your half of the house is worth £250,000 and you have another £150,000 in assets of any other kind, the whole lot can go to your spouse or civil partner without a charge. They also inherit any part of your IHT allowance not used at your death. So if you left them everything, on their death, they can now leave up to £650,000 without any tax being payable.
Rather than wait until you die to pass on your assets, you might decide to pass on some of them while you are still alive. You can hand over as much as you want, to anyone you want, in the form of “Potentially Exempt Transfers”. Under IHT rules, if you live for seven years after making them they are exempt; if you die within seven years they will be added to your estate and, if the estate is worth over £325,000, gifts previously made will attract a ‘tapered rate’ of IHT ranging between 20% and 100% (if you were to die within three years of aking your gift).
If you gifted a sum for the beneficiary to purchase a house and you died within seven years of making the gift, then the recipient could be forced to sell their property six months after your death in order to make the tax payment.
You can ‘gift’ smaller amounts of money to others without exposing them to taxation. For example, you can give a family member up to £3,000 every tax year without it being included in your estate when you die. Gifts of between £,1000 & £5,000 can be made to newly married couples and you can make gifts to charities and some other organisations.
Life Insurance
You could consider taking out a “under trust” life insurance policy which would mature on your death and cover the entire the IHT liability caused by your death. This would involve an annual or monthly payment to an insurer.
Trust Planning
Although it is by no means an IHT avoidance scheme, Trusts have been used for centuries to gift assets to successive generations and with proper ‘Trust Planning’, you too can effectively leave your entire assets to your children and continue to live there free of charge with no IHT to pay. this would involve a one-off payment to a Trust Specialist.
To have an Insurance or Trust Planning specialist contact you about placing your asset in Trust, please complete the Contact Us Form here: