Inheritance Tax (IHT) is a charge placed on a deceased person’s estate before it is passed to the person’s beneficiaries. National polling has revealed that Inheritance Tax is the nation’s least popular tax, and there have been calls to heavily modify or even replace it over the years.
- Inheritance Tax has been around since March 1986. It replaced the “Capital Transfer Tax.”
- Inheritance Tax is charged at a rate of 40% of assets held by the deceased exceeding the value of their Nil Rate Band. At the time of writing, this is £325,000 per person.
- Though there are specific conditions that can make an estate exempt from Inheritance Tax, this is exceedingly rare for the average person.
- Giving gifts to your loved ones whilst you are alive doesn’t always make those gifts exempt from Inheritance Tax.
- There have been multiple high-profile cases of celebrities avoiding Inheritance Tax, either partly or entirely, through careful prior planning.
Why is it so hated?
Many people feel that it is unfair to enforce a tax on assets after death; after all, the deceased person has already paid tax on their property and assets whilst they are alive. It can be seen as, in essence, a “death tax,” enforced on those who have not planned ahead to accommodate it when planning for their loved ones’ inheritance.
Is it going to affect me?
The answer is probably. If your estate exceeds £325,000 in total- including your house, saving and possessions- you will be liable for Inheritance Tax.
It is important to remember that this is charged after you’re gone, so remember to factor in insurance policies that pay out on death, pension payments and other payment sources that could raise the value of your estate.
Can it be avoided?
Yes, but it’s rather difficult. Several high-profile cases of total IHT avoidance have been documented over the years, such as George Harrison, who avoided a bill of around £40 million, as well as both Margaret and Denis Thatcher. Instead, it is recommended to take steps to reduce the impact Inheritance Tax will have on your estate.
Reducing Inheritance Tax’s Impact
There are methods to reduce the impact that Inheritance Tax will have on your estate. First an foremost, it is important to make a Will to record on paper your wishes and how you’d like your estate to be distributed. You may also wish to create a Trust, which has multiple benefits; these include making it more difficult for third parties to make claims against your estate, protecting your beneficiaries and making the way they inherit more secure.
You may also wish to donate to charity; contributing 10% or more of your total estate reduces your IHT liability to 36%.
Getting the right advice
As specialists in Inheritance Tax and estate planning advice, Accord Legal Services are here to help you protect your estate for your beneficiaries. For free impartial advice or to book a no-cost home consultation, call us today on 01744 806048.