Who will benefit ? How to pass on your Assets without a huge tax bill

woman surrounded by moneyWith tax avoidance and evasion in the news at the moment – and few people being sure what the difference is! – I thought I’d talk about an area of tax planning that is actually encouraged by HMRC, and that is Estate Planning or Inheritance Tax planning. It has been described by successive governments as a “voluntary tax”, given that there are many legitimate ways of reducing your tax liability, if you get the right advice!

Let’s start with what Inheritance Tax is…. if, when you die, your total wealth is more than £325,000, you may be subject to Inheritance Tax on the value above this amount. The tax rate is currently 40% – ouch!!

Like most plans, the best ones are those started well in advance of when they are needed.

However, if you die leaving all your wealth to your spouse or civil partner, there is no inheritance tax to pay at that point…not until they die and it passes on to the next generation. Each individual has this allowance of £325,000 (known as the Nil Rate Band), and if you are married or in a civil partnership, your surviving partner can also “inherit” your Nil Rate Band, meaning that as a couple, you have a total threshold of £650,000 before you would incur a tax liability.

So how would you feel if all your hard-earned assets that you had built up over your lifetime did not pass directly to your children or grand-children, without a large tax bill attached? Given the increasing value of property over the last few decades, many people find themselves in the situation of owning assets that are more valuable than the Nil Rate Band. As a couple, you might want to pass on your estate worth £1 million to your 2 children, but it would only be worth £430,000 to each child, after the bill of £140,000 has been paid.

Any Inheritance Tax due has to be calculated by the Executors of your Will, and the bill has to be paid before Probate is granted, which can sometimes create short-term challenges at what is often an emotional and distressing time for the people dealing with it. In the example above unless there is £140,000 in cash or investments within the estate, it means that a property may need to be sold to pay the bill, (and you might have intended that property to stay within the family).

Therefore having an up to date Will that clearly expresses your wishes, and taking action that reduces your IHT liability to the minimum, are the best things to focus on when you are alive and kicking.

There are many different options available to manage your estate tax-efficiently – including gifting, investing in certain products that attract Business Property Relief, the use of discretionary trusts, and taking out an insurance policy to pay all or part of your inheritance tax bill so that your beneficiaries don’t have to.

So how would you feel if all your hard-earned assets that you had built up over your lifetime did not pass directly to your children or grand-children, without a large tax bill attached?

Different solutions are more appropriate at different ages and lifestages, and the right solution for a family or an individual is likely to involve a combination of actions.

The earlier you start to plan the better! (and it certainly makes the insurance policy a more affordable option). As soon as the value of your assets exceeds the Nil Rate Band threshold, you should start taking action with your Financial Planner. It’s also a prudent conversation to have with your parents over Sunday lunch – why not ask them what action they have taken to pass their estate onto you without a large tax bill attached?!

Like most plans, the best ones are those started well in advance of when they are needed.

To receive a complimentary guide covering Wealth Management, Retirement Planning or Inheritance Tax Planning, please contact Amanda Redman on 07801 045587, email [email protected] or visit www.amandaredmanfp.co.uk

Amanda Redman
About the author

After an extensive and successful career as a business and marketing Director with a global, blue-chip company, Amanda retrained in 2013 as a Financial Adviser and set up her own business, Amanda Redman Financial Planning. She is qualified with a Diploma in Regulated Financial Planning, adding to her Masters degree in Languages from Cambridge. She has 2 children, Max 16 and Tamsin 5, is married to Mike and lives in Tonbridge, Kent. Follow Amanda’s blog or visit: www.amandaredmanfp.co.uk .

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