Inheritance Tax (IHT) is based on the principle of redistributing some of your wealth through the tax system, rather than the whole value being passed on to your chosen beneficiaries.
The good news is that there are ways of minimising your inheritance tax liabilities, so that your wealth can be enjoyed by those whom you want to enjoy it.
The current rates – in the financial year 2016 to 2017 – grant a tax-free allowance of £325,000, and tax at a rate of 40% on any amount in excess of that sum.
With effect from the next financial year (2017 to 2018), a further Transferable Main Residence Allowance (TMRA) – starting at £100,000 – is to be added to the basic allowance and increased to £175,000 by the year 2020/2021. At that stage, therefore, inheritance tax becomes payable only on any amount in excess of £500,000 – this is illustrated in a simple table published by the BBC in April 2016.
As the government’s official overview of Inheritance Tax explains here, any unused part of the current £325,000 allowance may be passed on to a spouse or civil partner, thus making the maximum potential allowance of £650,000 – and, with the addition of TMRA, a combined potential allowance of £1 million by the financial year 2020/2021.
In addition to being married or in a civil partnership, here are 8 more tips and suggestions for minimising your Inheritance Tax liabilities:
Even this very brief overview may help to illustrate some of the many options and complexities in managing your Inheritance Tax liabilities.
Effective Inheritance Tax planning is a complicated area of financial planning and to safely tread the line between tax avoidance (which is illegal) and tax evasion (which is not), you would be best advised to consult a qualified Independent Financial Adviser (IFA), duly authorised and regulated by the Financial Conduct Authority (FCA) before arranging your Inheritance Tax affairs.
At First Equitable we work diligently with our clients, helping them to navigate through the myriad of different options that exist to achieve positive outcomes for their, and their heirs, future financial security.
If you have a query regarding Inheritance Tax planning, and would like to receive some helpful advice in a language you can understand, please complete our contact form and an adviser will be in touch to discuss your needs.