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Inheritance tax planning
How to pass your wealth to your next generation rather than Taxman
Estate planning is your basic requirement due to rising property prices. IHT is a voluntary tax because with careful and timely planning, you can reduce or completely remove the IHT that your beneficiaries may need to pay.
Make a will
Using a Will is one of the most effective and convenient ways to reduce the amount of Inheritance Tax payable – by making the best possible use of the allowances available to both spouses. Will, not only provides legal ways of helping to reduce or avoid Inheritance Tax, but helps ensure as much of your wealth as possible is retained by your family and that your "wishes" are carried out.
Transfer your assets
There is no Inheritance Tax applied on transfers between married couples or civil partners – whatever the value. To other people, any amount can be transferred or given away free of tax provided the donor survives for another seven years.
Make regular gifts during your lifetime
There are a number of gift allowances available to every individual, where you can transfer your money and thereby reduce the value of your estate on which Inheritance Tax can be levied. These gift exemptions include:
Annual gift allowance
Small gifts exemption
Marriage gifts exemption
Charitable donations exemption
Set up a trust
Many people would like to make gifts to reduce IHT but are concerned about losing control of the money. This is where trusts can help.
Make use of new pension rules
New pension rules have changed the taxes applied to pension pots at death. In the past up to 82% tax was payable. Now pension funds are normally tax free on death before age 75. For deaths after age 75, beneficiaries are charged their marginal rate of income tax on withdrawals i.e. 20% for basic rate taxpayers. That's half the standard rate of IHT and, if the beneficiary doesn't pay income tax, they could pay no tax at all on at least some of their inheritance.
Gift to registered charities
Charitable gifts are completely IHT free and can reduce the rate at which IHT is charged on the rest of your estate if 10% of your taxable estate is left to registered charities.
Tax benefits of ISAs
If you are married or in a civil partnership you can pass the income and capital gains tax benefits of your ISA savings to your surviving spouse on death. It is also possible to create an IHT-free ISA – invest in certain AIM shares within the ISA and these qualify for an IHT exemption after two years.
Business property relief
Under BPR, investments in unquoted companies are exempt from IHT if you hold on to the shares for at least two years.
Companies listed on the Alternative Investment Market (Aim), also qualify for BPR, as do investments in companies that qualify as enterprise investment schemes (EIS). EIS investments allow you to invest up to £1m a year and you can carry forward the previous year's unused allowance. Significantly, there is 100% IHT relief after two years, if the investments are still held at the time of death.
To find out, how we can minimise your inheritance tax, why not contact us on 0208 914 8887 for a Free, No Obligation Consultation. Your financial strength is our success.