Inheritance Tax (IHT) has always been considered as a tax that will only affect the rich, however in 2022/2023 HMRC collected more than £7 billion from thousands of middle class families.
Here are 5 things to consider when it comes to IHT
Start thinking about gifting away some of your wealth – By leaving it too late to pass on your wealth, it’s more likely that your estate will be subject to IHT. There are allowances that enable you to give away relatively modest sums that are immediately outside of your estate, but gifts outside of these won’t be considered fully outside of your estate for 7 years, so are potentially liable to IHT if you die within this period.
Use your pension - Pensions are one of the most tax-efficient ways to pass on wealth and are not considered part of your estate for calculating IHT. In addition, if you die before age 75, benefits left in a money purchase pension can be paid as a lump sum or drawdown income to any beneficiary, and they’ll have no income tax (if you die after age 75 they’ll pay income tax on these benefits at their marginal rate).
Gifts into trust can result in potential IHT savings, but also ensure that some control is maintained over gifted capital in a way that doesn’t happen if the capital is transferred directly to your beneficiaries.
Check your life insurance – If it is written in trust the proceeds of the life insurance policy won't be included in your estate; this is particularly important if the policy has been taken out especially to cover an expected IHT liability.
Make sure you have an up-to-date will. There are many reasons for doing so, most importantly for most people being that this will ensure that your estate goes to who you want it to go to. There are certain circumstances, however, where some individuals’ estates will be liable to IHT if they die ‘intestate’ (without a will) which would almost certainly have been avoided if they had a will in place.
IHT can be difficult so speak to an expert today
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