Inheritance Tax Planning

Tax Planning - NJP Estate Planning and Will Writing Company - United Kingdom

Protect your assets from unnecessary Inheritance taxation

Many of us are unaware that the inheritance tax rate is a massive 40%. Without careful planning nearly half of your estate after any allowances will be lost to taxation, By using NJP Estate Planning we can help ease this burden.

What are Inheritance Taxes and how do they affect me?

Inheritance tax is paid on a person’s estate when they die. At present this applies at the rate of 40% of all your assets including property, investments, savings and vehicles over the existing £325.000 per person threshold. If you’re married it doubles to £650,000 as long as the first person to die leaves their entire estate to their partner. Anything over this limit is subject to a 40% tax bill. With property increasingly in excess of £350,000 average prices it’s easy to see how the unprepared will have a massive tax bill and will NOT be leaving loved one’s their wealth but a massive headache and tax bill!

With many people owning second homes and thousands with buy to let properties and holiday homes, mitigating this burden is imperative in careful estate planning.

Inheritance tax is usually paid by the Executor of your Will from funds available from your estate.

Ways to reduce your tax bill

  • Speak to NJP Estate Planning!

    Take out a life insurance policy that pays out upon your death. This can be used to ease the burden of inheritance tax as long as this policy is held in a Trust. If it’s not written into a Trust it will simply add value to your estate and increase your tax liability.

  • Gift an asset under the seven-year rule.

    Give away some wealth to family or friends. After seven years this money is moved from your estate from a tax perspective. Importantly it must be an irrevocable gift ie you must no longer have any ownership or control over these funds for them to fall outside of your estate.

  • Give away your main home

    There’s normally no Inheritance Tax to pay if you move out and live for another 7 years.

    If you want to continue living in your property after giving it away, you’ll need to:

    • pay rent to the new owner at the going rate (for similar local rental properties)
    • pay your share of the bills
    • live there for at least 7 years

    You don’t have to pay rent to the new owners if both the following apply:

    • you only give away part of your property
    • he new owners also live at the property

    If you die within 7 years

    • If you die within 7 years of giving away all or part of your property, your home will be treated as a gift and the 7-year rule applies.
  • Gifts

    There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.

    There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently.

    Other gifts count towards the value of your estate.

    People you give gifts to will be charged Inheritance Tax if you give away more than £325,000 in the 7 years before your death.

    What counts as a gift

    A gift can be:

    • anything that has a value, such as money, property, possessions
    • a loss in value when something’s transferred, for example if you sell your house to your child for less than it’s worth, the difference in value counts as a gift Call the Inheritance Tax and probate helpline if you’re not sure.

    Exempted gifts

    You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.

    You can carry any unused annual exemption forward to the next year – but only for one year.

    Each tax year, you can also give away:

    • wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
    • normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
    • payments to help with another person’s living costs, such as an elderly relative or a child under 18
    • gifts to charities and political parties

    You can use more than one of these exemptions on the same person – for example, you could give your grandchild gifts for her birthday and wedding in the same tax year.

    Small gifts up to £250

    You can give as many gifts of up to £250 per person as you want during the tax year as long as you haven’t used another exemption on the same person.

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