Inheritance tax: What is the threshold allowance and how can you reduce your bill? | Personal Finance | Finance
[ad_1]
Often referred to begrudgingly as the “death tax”, Inheritance tax (IHT) can be a large and often unexpected bill. There is no IHT to pay for estates valued under £325,000, which is known as the nil rate band. However, with the rapid increase in house prices, many unintended families will be subject to this tax.
There are methods for reducing an IHT bill. IHT is only charged on the parts of the estate which are above the £325,000 threshold.
If everything above that level is left to charity, a spouse or civil partner, or a community amateur sports club than there will normally be no IHT to pay.
On top of this, if 10 percent or more of the total estate is left to charity, there will be a reduced rate of IHT on the remainder of the assets. Currently the IHT rate is 40 percent, which will therefore be reduced to 36 percent.
READ MORE: Inheritance Tax warning: Why your life insurance payout could end up being subject to IHT
Gifts can be an effective tool for IHT purposes but they can be a complex element to understand. The government defines a gift as anything that has value, such as money, property or possessions.
They also detail that a gift can be a loss in value when something’s transferred, for example if a house is sold to the individuals child for less than it’s worth, the difference in value counts as a gift. Advice can be sought for gift giving and the government advises keeping records for:
- What has been given
- Who it was given to
- when it was given
- How much it was worth
Certain foreign assets will also be excluded from UK IHT. This includes foreign currency accounts with a bank or post office, overseas pensions or holdings in authorised unit trusts and open-ended investment companies. For anyone unsure of what assets will be excluded an Inheritance Tax and probate helpline can be called.
An often overlooked part of IHT planning is the creation of a will. As the government details, all of the above points can be organised through an effective will. If a will is not created it can create problems for an estate upon death. An individual’s estate will be “intestacy” if no will has been created.
This will mean that the estate will be shared out according to rules laid out by the government, not according to the wishes of the deceased. Generally, the estate will be passed on to close family members but as there is no pre-planning it could be hard to predict IHT bills. There is also a risk of the estate being passed onto the Crown.
[ad_2]
Source link
