Best Tips On How To Reduce The Inheritance Tax Burden



More and more people are finding themselves trapped in the claws of the inheritance tax burden. In the past, inheritance tax was exclusively a worry for the very wealthy – a tool for the government to generate some extra revenue from the rich. Today, the tax is biting on the hard earned cash of middle class households.

As of 2010, the inheritance tax-free allowance has been frozen at £325,000 for individuals, and £650,000 for couples. Anyone whose estate exceeds this value at the point of death will be hit with a 40% tax on anything above the £325,000 threshold.
Will and testament

The value of your estate is determined by the government upon your death. To find the value of your estate, they deduct your debts from the value for your assets. Assets include cash, investments, vehicles, businesses, and most importantly, property.

The increasing value of property is pushing more estates than ever before out of the tax-free threshold. With rising property prices, especially in parts of London and its surrounding counties, middle class families on moderate incomes are being dragged into paying a tax which had never previously concerned them. The net of the inheritance tax has caught households it had never intended to catch.


Understandably, most people would like to see as much as possible of their hard-earned wealth passed on to their loved ones, but as long as this catch-22 continues, moderate households will remain exposed to the inheritance tax.

Here are four ways you can reduce the inheritance tax burden for your loved ones:


1. Give It Away

You can give away assets, thereby removing them from your estate's value, providing you gift them at least seven years before you die. Money given away within seven years is still counted as part of your estate, so be sure to plan in advance and give away assets early. This can be used as a way of helping children to buy a home or set up a business, but also reduces the value of your estate, meaning your beneficiaries are less likely to pay inheritance tax.

2. Small Allowable Gifts

Gifts worth up to £3000 each tax year are exempt from inheritance tax upon death. Gifts are also allowed when a child gets married, with parents able to give up to £5000 and grandparents up to £2500. Such generosity can again reduce the value of your estate.Great Britain Pounds

3. Be Sure To Write A Will

When you die, any assets left to a UK spouse or registered civil partner are tax free. Furthermore, any assets within the tax-free allowance threshold that are not given away to others are added to the spouse's tax free allowance. If one partner only gives away £225,000 of his or her £325,000, the other partner's tax free threshold will increase to £425,000 and so on. Yet without a will, assets may end up going to other relatives, meaning that this tax exemption will no longer apply and you’ll lose more of your estate in taxes.

Planning for your own death isn't nice. For many it's an uncomfortable topic, but being prepared and writing a will is hugely important in making sure your assets are distributed as you desire.


4. Life Insurance Under Trust

Taking out a life insurance policy can be a great way to make sure that your heirs have an extra layer of financial stability when you die. To ensure that they can make the most of your preparation, however, you should put your life insurance policies under trust.

Policies under trust don't count when the government comes to value your estate upon your death, meaning that your family can benefit from your wealth without paying out to the tax man.


Be Prepared, But Also Be Secure

With more and more households falling into the inheritance tax trap, preparation is key. By following these steps you can reduce the amount your family has to pay in inheritance tax.

Although preparation is important, it's equally important that you can make the most of your wealth in old age. Be sure to write a will and have everything in order for when the time comes, but also make sure to save yourself enough money that you can live well in the meantime and have financial security in your golden years.


David Johnson is the owner of Asset Wills, an Essex will writing company who specialise in writing, protecting and executing wills on behalf of their clients.

You may also be interested in:
Expat taxes in the United Kingdom
What Does Being A Guarantor Mean? What are the risk?

We would love to hear from you about your experience with Inheritance Taxes.

 



YOU MAY ALSO LIKE