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It is important to remember that you don't have
to be a millionaire or even be rich for your estate to
be eligible for Inheritance Tax. Currently IHT is levied on everything
you leave over £312,000 for this tax year and this includes
- your home and car
- your furniture and personal effects
- your investments and savings
- the proceeds of your life insurance (unless under
trust)
Most people nowadays are therefore liable for this
tax unless they plan positively, and quite legally, to defer or
avoid this responsibility.
The rate of Inheritance Tax is 40% for everyone. This is equivalent
to the highest current rate for income tax. The tax is paid by
those that inherit - and is deducted from the value of the estate
on death - so inheritance tax is relevant whether you stand to
gain an inheritance or you plan to leave one.
Also, the problem is magnified as we are now in the period where
the first batch of home owning citizens are leaving this mortal
coil and passing the value of the house plus all the other items
to the children.
However big or small your inheritance, there are a number of ways
to put your money to good use. The ideal way, of course, is to
invest at least some of it, so it grows into a more substantial
sum.
With many people now spending as long in retirement as they do
in their working lives, it's wise to add a substantial sum to your
pension. Especially when you consider that the State Pension is
currently only worth 15% of an average person's wage and is forecast
to drop to 8% in the next two years. By making a one-off lump sum
payment into your pension fund you can make a big difference to
the quality of your retirement - and, of course, it is tax efficient.
Another way to invest your inheritance is to place it in an Individual
Savings Account (ISA). These are tax-free in the hands of an investor,
and could be an ideal way to help save for a rainy day or to give
you a more comfortable retirement. Other options to consider include
Friendly Society accounts and National Savings.
First, it is important to decide to whom you may be leaving an
inheritance.
Without some careful planning, the amount you leave might be a
lot less than you think because the taxman might want the beneficiaries
to pay Inheritance Tax.
In addition, the Government's ongoing review of the fairness of
the tax system is likely to affect any inheritance planning, so
you should think about making some plans right away.
For a lot of people, making a will is the most obvious way to plan
for the future and the fairest way to provide for loved ones
yet, 70% of the UK population do not have a will. Dying without
leaving a will is called "dying intestate" - which
means that all your "wealth" is divided up between
each surviving member of your family without you having any say
in the matter so the relation that you loathe gets a proportion
of your money, and there is usually a big fight.
Worse still, if you haven't any family or beneficiaries, it goes
straight to the Crown - yes, the state grabs it all.
Another drawback of dying intestate is the fact that the law does
not recognise unmarried partners, friends or charities.
All this heartache and the inevitable delays can be avoided if
you make a will.
We will be able to help advise you on the content of your will,
or alternatively recommend the services of a local solicitor. At
a cost of around £100 it could save your family a fortune
and a great deal of worry.
There are a number of ways we can help you to reduce or indeed
negate any possible Inheritance Tax.
You could, for instance, make gifts now to intended beneficiaries
as these gifts are free of inheritance tax, providing you live
for 7 years or more following the gifts. There are several other
tax-efficient ways of making annual gifts, both to individuals
and organisations such as charities.
You could then leave a further £312,000 free of inheritance
tax to them in your will and gifts between married couples are
not subject to any Inheritance Tax.
You might like to think about setting up a trust. If you put part
of your estate into a trust for your grandchildren, it could be
decades before your cash is again under the eye of the taxman.
Trusts can be complicated and we will set this up fir you, if necessary,
working in conjunction with your solicitor.
Another option you might like to consider is setting up an insurance
policy to pay the tax bill after you die. We can compare all insurers
and find you just the right policy.
The spouse will benefit only if he or she survives the intestate
partner by 28 days. Where the spouse does not survive, the intestate
estate will be dealt with as if there had been no spouse.
Some ideas you might like to consider having checked
the current level of the Nil Rate Band below which tax is not payable.
- Making grandchildren the main beneficiaries Using
foreign property
- Giving your house to your children but remain
living in the property
- Gifting personal effects
- Using the nil-charge on inheritances by a spouse
- Setting up gifts within the 7-year period prior
to death regulation
- Setting up a family trust
- Discuss how much you can give away each year
free of inheritance tax liability
Levels, bases of and reliefs from taxation
may be subject to change.
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