What is Inheritance Tax (IHT)
Inheritance Tax (IHT) is a tax on the estate of a deceased individual, encompassing their property, money, and possessions. This is primarily paid by those who inherit the assets of the deceased, excluding a spouse, civil partner, or legal spouse. Typically, it must be settled before the distribution of the estate to beneficiaries.
Estate planning
Estate planning is crucial for managing assets during a person’s lifetime and beyond, aligning with the person’s preferences effectively.
Addressing Inheritance Tax (IHT): Early planning helps minimise the impact of IHT on finances, but estate planning encompasses more than just tax considerations.
Comprehensive Approach: Estate planning ensures resources are available to support a desired lifestyle and handle unforeseen events, providing confidence in financial decision-making.
Gifts: Estate planning allows for financial gifts now, witnessing their positive effects on loved ones and causes important to a person.
By prioritising estate planning early and adopting a holistic approach, you can secure your legacy and financial well-being for the future.
Exemptions and Thresholds
Typically, no Inheritance Tax (IHT) is due if the estate value is below £325,000. Assets left above this threshold to a spouse, civil partner, charity, or sports club are also exempt.
If the main residence is passed to children or grandchildren, the threshold can increase by £175,000.
Unused portions of the threshold can be added to a partner's threshold upon death if the estate is worth less than the threshold.
IHT Tax Rate
IHT is charged at a standard rate of 40% on the portion of the estate exceeding the threshold.
A reduced rate of 36% applies to some assets if 10% or more of the net value is left to charity.
Reliefs and Exemptions
Taper relief may reduce the IHT rate on gifts given within 7 years of death.
Business Relief and Agricultural Relief can exempt or reduce IHT on certain assets.
Tax Payment and Beneficiaries
Funds from the estate are used to pay IHT to HMRC, managed by the executor.
Recipients of gifts exceeding £325,000 within 7 years of the donor's death may be liable for IHT.
Understanding these principles is crucial for effective estate planning and navigating Inheritance Tax obligations.
Tax Surgeons' Inheritance Tax Services
At Tax Surgeons, we understand the complexities surrounding Inheritance Tax (IHT) and offer comprehensive services to help clients effectively manage their estate planning needs. We help clients who are in the planning phase of their estate, along with those who need help and support in submitting forms and paying IHT after losing a loved one. Here's what we offer:
Strategic Planning: Customised strategies to minimise IHT impact on your estate.
Tax Optimisation: Leveraging allowances, exemptions, and reliefs for efficient asset transfer.
Review and Analysis: Thorough assessment for tax-saving opportunities.
Documentation and Compliance: Handling paperwork accurately and timely for HMRC.
Guidance and Support: Expert assistance throughout the process.
Continued Monitoring: Keeping strategies updated with evolving tax laws.
Tailored Solutions: Personalised services for individuals, families, or businesses.
At Tax Surgeons, we are committed to helping our clients protect their wealth and ensure a smooth transfer of assets to future generations. We offer support from estate planning all the way through to submission of IHT400 and related forms. Our aim is to ensure that the inheritors benefit the most from the estate. Contact us today to learn more about our Inheritance Tax services and how we can assist you in achieving your estate planning and distribution goals.
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Gifts and Inheritance Tax
Inheritance Tax (IHT) can apply to gifts made during your lifetime, with several considerations to keep in mind:
Gifts made within 7 years before death may be subject to IHT, based on factors like recipient, gift value, and timing.
Gifts encompass money, property, stocks, and personal belongings, including any loss from selling an asset below market value.
Gifts left in your will are considered part of your estate, which includes all assets and possessions upon death.
Exemptions from IHT
Gifts between spouses or civil partners, and to charities or political parties, are exempt from IHT.
Tax-Free Gift Allowances
Utilise annual exemptions up to £3,000 and small gifts of £250 per person per year.
Special allowances exist for wedding or civil partnership gifts and regular payments from income.
The 7-Year Rule
Gifts made within 7 years of death may incur IHT, with taper relief applied for gifts made 3 to 7 years prior.
Gifts with Reservation
Gifts where you retain benefits, like continuing to use a property, are included in your estate for IHT purposes.
Understanding the rules surrounding gifts and Inheritance Tax is crucial for effective estate planning. Keep detailed records of gifts made and seek professional advice to ensure compliance with tax regulations. If you have any questions or require further assistance, contact us.
Passing on a Home and Inheritance Tax
When it comes to passing on your home, there are several factors to consider regarding Inheritance Tax (IHT). Here's what you need to know:
Passing to Spouse or Civil Partner:
You can pass your home to your spouse, wife, or civil partner upon your death, and there will be no Inheritance Tax payable.
However, if you leave the home to someone else in your will, its value will be included in the estate.
Increased Tax-Free Threshold:
If you pass your home to your children or grandchildren, your tax-free threshold can increase to £500,000, provided your estate is valued at less than £2 million. This is the £325,000 allowance along with a £175,000 Residential nil rate band (RNRB).
Giving Away a Home Before Death:
Generally, no Inheritance Tax is due if you give away your home and survive for another 7 years.
If you wish to continue residing in the property after gifting it, you must pay rent at the market rate, share the bills, and reside there for at least 7 years. Failure to do so may result in the property being included in your estate upon death, known as a "gift with reservation." Rent payment is not required if you only give away part of your property, and the new owners also reside in the property.
Death Within 7 Years:
If you pass away within 7 years of gifting your property, it will be treated as a gift, and the 7-year rule for Inheritance Tax will apply. Notably, the 7-year rule does not apply to gifts with reservation.
Probate and paying IHT
Probate is the legal process of administering the estate of a deceased person, including handling their assets, debts, and distributing inheritances. Executors named in the deceased's will or administrators appointed by the court oversee the probate process. Probate involves valuing the full estate, applying for a Grant of Probate (or Letters of Administration), and settling any outstanding debts and taxes. Once probate is granted, assets can be distributed according to the deceased's wishes or intestacy laws if there is no valid will.
It is important to understand that HMRC will start adding interest on any outstanding IHT payments from 6 months after the death of the estate holder. So it is a good idea to make a payment on account early on to ensure this interest value does not add up. To make a payment, you will need a payment reference number, this can be applied for online or via post.
Tax Surgeons Services
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Contact us today to see how we can assist you in achieving your financial goals.
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