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All about inheritance tax planning

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Inheritance tax is a tax on the estate (the property, money and possessions) of someone who has died. If an estate is under the £325,000 threshold, or if anything over the threshold is left to your spouse or charity. Inheritance tax planning is a fundamental part of wealth management. By planning ahead, you could save your family thousands of pounds in inheritance tax. This is a greater way to preserve your wealth for future generations.

How much is inheritance tax

When the value of your estate exceeds the £325,000 threshold, everything over it is taxed at 40%. If you are leaving your estate to your surviving spouse, no IHT needs to be paid. There are a number of rules, exemptions and reliefs, which means that inheritance tax can be a difficult area to navigate.

Inheritance tax planning

For many people, it may come as a surprise that when you die a large proportion of your wealth could be subject to inheritance. This includes assets such as your home, investments, insurance plans and even old family heirlooms. Inheritance tax can become very complicated and the stakes are high. We recommend using a financial planner like Suttons IFA to assist you with estate and inheritance tax planning. They will be able to pass on their knowledge and help you understand your options so that you can pass on as much wealth to your loved ones as possible.

How to reduce the size of the taxable estate

A person’s taxable estate includes investment holdings such as cash, stocks and bonds, as well as real estate and property such as cars and buildings. The taxable estate becomes relevant when a loved one inherits a person’s assets and must pay tax on them.

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Estate planning or inheritance tax planning can help beneficiaries avoid complicated tax situations following the death of a loved one. In this section, we explore some of the different ways you can reduce the size of your taxable estate.

Make a will

Creating a will is a crucial part of inheritance tax planning and it is crucial that you keep it up to date. You must clarify exactly what you want to happen to your money, estate, and other assets. Remember that no inheritance tax is paid on assets inherited between spouses.

Put assets into a trust

Using a trust is a great way to set money aside to support any beneficiaries. Often these trusts are used at a specific time such as to pay university fees. Since trusts are placed outside of your estate, it is free from inheritance tax. This is however a complicated area, so we would always recommend getting financial advice on setting up a trust fund.

Make gifts from excess income

Finally, another way in which you can reduce the size of your taxable estate is through gifting. Gifting involves giving money or assets to your beneficiaries whilst you’re still alive. It’s important to note that in order for these gifts to be exempt from IHT, they must be given more than 7 years before your death. Although, it is possible to make smaller gifts of up to £3,000 per year that will be free from inheritance tax.

What is an inheritance tax planner?

An inheritance tax planner is a financial advisor who can help you plan for the future to look after your loved ones by growing and organising your wealth for their benefit when you die. They can help in setting things up efficiently at the time of your death. With their expert help, you can make a tax-efficient will and reduce your taxable estate.

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It is never too early to take professional advice to prepare a strategic plan to use the tools available to reduce your potential IHT liability. You should always take advice before making substantial gifts to a third party, setting up a trust or investing in any financial products or business. There is no one-size-fits-all when it comes to IHT planning and it is often the case that a number of tax planning tools will need to be used.

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