There is nothing certain but death and taxes, is the essence of a quote attributed to Benjamin Franklin. But tax on death is something that can be planned for in advance and which for many may result in them paying no inheritance tax (IHT) at all.
Inheritance tax is sometimes referred to by those in the know as the 'voluntary' tax. This is not because it is voluntary at all but there are a number of allowances and reliefs that can be reviewed and used as appropriate, which for a lot of people will enable them to avoid having to pay IHT.
The IHT allowance, or Nil Rate Band, as it is called is currently £325,000 per person, which for a couple (married/ civil partners) and the right ownership structure can then mean a total estate value of £650,000 before IHT is paid.
There are many allowable exemptions, subject to the rules, including:
- Spouse/ civil partner exemption
- Annual exemption
- Small gifts
- Gifts on marriage
- Gifts out of income
- Potentially exempt transfers
- Gifts for the maintenance of dependant relatives
- Gifts of excluded property
- Gifts with reservation
Wills and gifts into trusts are also other planning mechanisms.
IHT planning or estate planning as it is sometime called, can be a complex matter and it is advisable to consult experts. Professional and suitably experienced financial planners can help and STEP lawyers can help too.
For those who may have estates valued at about their IHT allowance, it is well worth taking advice during your lifetime. This can not only provide that reassurance that your affairs are in order but unlike the poor woman in this article, you will then know you have done everything possible to ensure your loved ones won't have to go through the difficulties and expense at a time when they will be grieving.
When David Cameron said in 2010 that he would raise the inheritance tax threshold to £1m if elected, many homeowners breathed a sigh of relief. He was duly elected but, alas, as with many politicians’ promises, this one came to nothing. The threshold remains at £325,000, after which 40pc tax has to be paid on the total value of the estate. But as I have just realised to my cost, paying inheritance tax (IHT), which is bad enough, is only the start.