When exploring your inheritance tax problem, it can often be quite tempting for you to avoid the complexities of inheritance tax planning and just go for the simple solution. However, these decisions have consequences. As an effective inheritance tax plan has to look at a wide range of issues the most effective plans can be complex and does require comprehensive solutions if you are to meet a wide range of objectives. This blog explains the potential strategies that you can use.
Understand Your Allowances
Depending on your situation, you have access to various allowances. For example, the current Nil Rate Band is£325,000. If you are in a married couple then you can get double the allowance.
To ensure that you qualify, there are various ways that you can keep the value of your Estate down.
1. Spend Your Money
This is the first strategy. By doing this, you can keep your Estate below the taxable allowance, meaning that you won’t have inheritance tax to pay. However, it does mean that you will have less money to pass on to your family.
2. Give Your Money Away
Another relatively simple solution is to give your money away. If this is done properly, it can ensure that more of your wealth is passed on and that the value of your Estate/assets are lower. Sadly, gifted money is not protected if your children get divorced or die young, meaning there are negative consequences to simply just give your money away. There could also be negative tax consequences for you or your children.
To find out more about this, you should watch the video 'Is Estate Planning More Important Than inheritance tax Planning?'
3. Life Insurance
This is another simple strategy that doesn't involve avoiding inheritance tax. This is fairly straight forward for any advisor. Understandibly, it can be expensive if you have certain health issues. Moreover, it can be complicated for you to work out the correct level of cover. It would be helpful to watch the ‘Save Money Using Two Insurance Plans Instead of One’ to get a better understanding of the associated benefits.
This can be a complicated processes there are many different types of Trusts that you can use. The tax implications of Trusts are also complex, so it is essential that you seek out good advice before you set up any Trust. A useful video that you can watch for more information is 'A Trust to Suit Everyone.'
5. Family Investment Companies
The fifth strategy that you can follow involves using Family Investment Companies (FICs). This strategy suits people with large Estates, where the total value of their assets is over£2million. FICs can also be useful if you own a property portfolio in terms of saving Capital Gains Tax. They can be challenging as the setup of a company is complicated, and tax rules may change. They also cost money to maintain. ‘Why Use a FIC to Avoid inheritance tax’ is a useful and comprehensive video that helps to explain why and how you can use FICs.
What Are You Trying to Achieve?
This the fundamental question that you should ask yourself. A potential answer could be that you want to protect your assets for your family bloodline. You have to weigh up what you want to do and invest some time into establishing the most comprehensive solutions available to you. Any plan is better than no plan. However, simple plans are not as effective as much more comprehensive plans.
Simple plans like life insurance or paying an investment bond into Trust are relatively easy to understand. They are effective to some degree. Yet, a more comprehensive plan is much more effective. For example, if you are trying to lose weight, a simple diet may work. On the other hand, if you wanted to improve your overall health and vitality, then you would need to go beyond losing a bit of weight. You would need to consider a healthy nutrition, exercise and sleep plan with stress reduction. These things combined would help you to produce a much more effective solution.
As a firm, we are committed to recommending the most effective overall solution for our clients, which is always comprehensive. Once you fully understand the comprehensive plans and heir benefits, you could then choose to just implement some of the simpler solutions.
Good effective results for you and your family require an investment of time, effort and payment of reasonable fees.
If it takes you 15 hours of time and £10,000 in fees to save £500,000 in inheritance tax that is a great investment of both time and money. Your family will thank you.
Like all matters related to Estate Planning and inheritance tax, experienced advice is essential.
Call us if you require any help.