Is Inheritance Tax (IHT) likely to affect me?
As a rough guide, if your assets exceed £325,000 (known as the Nil Rate Band or NRB) the excess will be taxed at 40%. If you are married or widowed your executors can now claim two allowances thus meaning you do not have a problem if you die with assets below £650,000. Of course, it is not as simple as this. If you own a home you will have an additional allowance called the residential nil rate band which will be £175,000 per person by 6th April 2020
Inheritance tax – IHT is usually only payable on the second death within a married couple providing suitable Wills have been drawn up leaving the excess over the NRB to the surviving spouse. Please use this link to calculate your IHT
As IHT is charged on the second death you should, of course, do some projections as to what your estate will be worth at that time as in many cases your estate value grows faster than the NRB allowances. In many cases, where property or properties in the south of the UK are the main assets the IHT liability can almost double every 10 -12 years.
Most people fail to project forward the value of their assets over the time of their perceived lifetimes and so believe they will not have a large IHT liability.
This is a serious error – take the time to get the projections or engage us to do them for you.
The rules regarding Inheritance tax were changed in October 2006 and so if you have not had your existing Wills reviewed since that time is advised to do so. All new clients who proceed with out Advanced Wealth Protection Plan will have new wills included as part of the plan
How do I avoid paying inheritance tax – IHT?
Life assurance is usually the most expensive route and does not avoid the tax but provides the funds to pay it. There are many more cost effective ways but basically, it involves giving assets away, either directly or into trust. We do not recommend giving assets directly to your children as they may get divorced and lose your money or even worse you may lose your home.
Trusts are usually a better route as they enable you and your beneficiaries to not only avoid the inheritance tax after 7 years but also help keep control of the assets in the event divorce or bankruptcy of your children. If set up correctly they can also help avoid care home fees.
However, before you give assets away you need to ensure that you are financially secure for the rest of your natural life. The good news is that money placed into a trust can also continue to supply you with an income stream for life. An experienced Inheritance tax and Estate planning adviser is essential for your peace of mind in this area.
Why should I use Bluebond to help me with my Inheritance tax planning?
Like all tax planning, this area is much more complex than many advisers appreciate. A good understanding of both the legal side and the financial planning side is essential in order to provide you with the most suitable advice.
As most of our clients are millionaires, many are referred to us specifically for Inheritance tax advice. The Bluebond Group was set up specially to help people with their estate planning and Inheritance tax in particular, as it forms the vast majority of our work. As such we are very experienced in this particular area. Many of our clients are unlikely to pay any Inheritance tax at all despite assets well over 1 million pounds.
Any questions on Inheritance tax planning?
Register for our FREE online IHT education course