Like all Tax Planning, Inheritance Tax planning is much more complex than many people appreciate. Solicitors deal with the legal aspects, Accountants with the tax aspects and Financial advisers with FCA regulated plans that help avoid Inheritance tax. Therefore, it is normally difficult for you to get comprehensive advice in one place.
At Bluebond Tax Planning, we provide our clients with a comprehensive solutions to all the legal,tax and financial planning elements, which is essential to provide you with the most suitable IHT advice:
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Inheritance Tax planning is a process used to avoid Inheritance Tax on your estate on your death. 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.
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.
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 our Advanced Wealth Protection Plan will have new wills included as part of the plan.
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.
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. You can find more information about this issue here.
Trusts are usually a better route than Life Insurance as they enable you and your beneficiaries to not only avoid the Inheritance Tax after seven years but also help keep control of the assets in the event of 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.
Rule of thumb if you do not have access to this software: Use this link to calculate your IHT and once you have calculated your liability ( if most of your money is in your home ) double it every 10 years to give yourself a better idea. However, you should speak with us directly for a more accurate understanding.