Did you consider the impact of Inheritance Tax when you drew up your Will ?(if, indeed, you have one!)
Many people think Inheritance Tax does not apply to them, and so don’t think it is an issue – but these days it does not only affect the rich, famous, company bosses and Premier League footballers!
With the big increase in the value of property over the past 20 years, many more people could now be caught up in the Inheritance Tax bracket – and that means some of their money could go to the Government when they die.
If your property is worth £300,000 plus, and you have some savings or investments, then you could find that you face paying Inheritance Tax at 40 per cent on anything above the current threshold of £325,000 of your estate.
It is collected by Her Majesty’s Revenue and Customs (HMRC) – and there are requirements governing its payment and penalties for failure to comply.
Even if your estate is worth less than £325,000, there are still forms that will need to be filled in to verify that it has been accurately valued.
Of course, there is an exception to the £325,000 threshold when it comes to the estate of a married couple or civil partners. In this instance, if the first to pass away leaves their entire estate in their Will to the surviving partner or spouse, they also pass on their Inheritance Tax threshold of £325,000.
This means there will not be any Inheritance Tax to pay of the estate when the second person dies unless the value exceeds £650,000.
But there are steps you can take to avoid paying money to the Tax man.
In 2015, George Osborne did introduce a scheme to help avoid Inheritance Tax on homes worth up to £1m by April 2020 when they are left to children or grandchildren.
But the complication comes when you turn to how this sum is reached – incorporating the new ‘Residence nil rate band’.
In addition to the potential £650,000 threshold for a couple, the ‘main residence’ band adds an extra allowance as long as the property is left to children, step-children and/or grandchildren.
At the moment, this new allowance is £150,000 per person, rising to £175,000 from the 2020/21 tax year, to give each individual a total allowance of £500,000 – hence the £1m figure.
But complications can arise when it comes to unmarried couples – it depends on whether you are ‘joint tenants’ or ‘tenants in common’, and also whether there is a Will in existence.
There are other ways of reducing or avoiding Inheritance Tax, which include:
- Leaving a legacy to charity
- Putting your assets into a trust for your heirs
- Paying into a pension instead of a savings account
- Giving away up to £3,000 a year in gifts
All these are taken into account when Inheritance Tax is calculated.
The Executor (if you have a Will) or Administrator (if you don’t) of your estate is responsible for calculating the value of your estate and identifying any applicable deductions.
Again, this can become complicated if they have to value property, antiques, jewellery and investments.
And there may be other taxes to consider – is there any Income Tax due on any earnings, do you own properties and receive rent on them, or have earnings from investments either in the UK or abroad?
Bear in mind Probate will not be granted – and your estate distributed in accordance with your wishes if you have left a Will – until the Inheritance Tax issue has been settled.
It is a complex issue which can depend on individual circumstances, but good advice is to make sure you have a Will in place to ease the process.
If you want some help and advice in drafting your Will, particularly when it comes to Inheritance Tax, why not contact us on 01952 305 105 or 07786 548025 or email firstname.lastname@example.org