Inheritance Tax

What is Inheritance Tax?
In simple terms, Inheritance Tax ("IHT") is based on the value of your home and its contents, your savings and investments, and any other assets that you own in your name or jointly with others when you die. Assets passing to your spouse or to charity will be excluded. Qualifying business and agricultural property may attract relief of up to 100%. Certain gifts that you may have made in the last seven years may also be taken into account (at differing tax rates). Debts outstanding at the time of death will normally be deductible in determining the value of your taxable estate.

Many people think that IHT is just for the very wealthy. This can be a very expensive mistake since, by thinking this, the taxman will benefit from your estate rather than your family, friends and charities.

IHT is currently charged at 40% on the value of estates above £255,000. This figure can easily be reached when taking into account the value of property, life policies (such as those that pay off the mortgage on death) and savings. It is also worth bearing in mind that the value of some assets, particularly property, may have increased significantly since they were purchased. So especially if you live in London and the South East and are enjoying the benefits of current high level of house prices, you should be aware that this alone could ensure that your estate becomes liable to IHT.

Even if your home is worth less than this amount, add in some savings, life assurance policies or business assets, and you will see that the Chancellor of the Exchequer could easily take a cut of your estate. And of course, your home is likely, over time, to rise in value quicker than the Chancellor raises the tax thresholds. So, as time goes on, the more likely it is that your estate will be liable to IHT. So, what to do.....?"

Inheritance Tax Planning
As stated, many people can end up leaving a substantial tax liability on their death so that bequests, be they to their children, their grandchildren or to charities, can have a much lower value than anticipated. In many cases, this tax burden, particularly in respect of property, can result in the beneficiaries having to sell rather than retain different assets in order to meet the IHT liability, which is unlikely to have been the wish of the benefactor. Although transfers between husband and wife are tax free, and using this as part of the planning process can help, such transfers really only postpone the tax liability because more tax will be payable on the death of the surviving spouse, since the estate would now incorporate two persons assets.

Smith & Eades specialises in providing solutions to minimise your IHT liability. We want your family, friends and good causes to benefit most from your estate, not the taxman. Planning to minimise your liability to IHT is a big resposnsibility, both for yourselves and for your beneficiaries - the sooner it is addressed, the easier it is to ensure your long-term objectives.

Inheritance Tax - steps to take
To reduce your IHT burden, you must think about:

Reviewing your will on a regular basis. Do you even have a will? If not this should be addressed as soon as possible. This is not a happy thought but by addressing this simple matter, you have taken a great step towards improving your IHT position. To compliment our taxation services, we can even assist in arranging your will.
Reviewing your estate planning strategy. Look at your family's future needs and your own financial security. Look at the value of your assets now and how this may change as time goes by.
Considering gifts to individuals or even trusts. This can take items out of the reach of the Chancellor! Remember that gifts to spouses are exempt.
Maximising business property relief.
Taking out life assurance policies that can be used to make gifts to beneficiaries, and also to build up sufficient money to pay any IHT that may eventually become due. If you are still not convinced as to the benefits of IHT planning, then it is worth considering the following example...

IHT is payable on a person's wealth in excess of £255,000 at 40%. So, if your estate is worth £300,000, not a great amount above the threshold, especially if you have a property, your estate could be liable for as much as £18,000. That's £18,000 less for your children or grandchildren or your favourite charities.....

Smith & Eades has a one stop shop that makes all aspects of estate planning as efficient and painless as it can possibly be. For further information on our IHT Consultancy services, or if you wish to discuss the above or related matters, please contact us on info@smith-eades.co.uk.