Issues of estate division can be a tricky subject to raise, especially when a degree of inheritance tax planning is required. No one likes thinking about their demise, but there are ways of mitigating the inheritance tax burden on your loved ones, so, you really are better off planning in advance to make your wealth go further and avoid paying unnecessary tax.
If you've worked hard all your life to create a secure environment for your family, it's quite natural that you want this to extend beyond when you are gone. To ensure this, certain issues need to be considered, and this could mean a certain amount of inheritance tax planning. Without scrutiny, it could be that the bulk of your estate goes to the taxman.
What is inheritance tax; how is it calculated?
When you die, the total value of your estate will be calculated. This is usually comprised of:
- any assets – property, business, etc.
- any money in bank or building society accounts
The inheritance tax threshold is set by the government. For anything over the threshold, you will be taxed at 40% (as at June 2015). However, if you donate at least 10% to a chosen charity then the tax payable drops to 36%.
Working out how much you could potentially owe can be a complicated business. Oratto member lawyers have years of experience in administrating estates and inheritance tax planning. For straightforward, practical advice on how to leave your money to the people you want to have it, contact Oratto today. You can choose a solicitor with whom you feel you can work and options for how you want to communicate with your lawyer are multiple; we work always to your needs.
Are there any exemptions to consider when I am inheritance tax planning?
- Yes. There is a clear and complete exemption if you are killed during active service. For example, police, firefighters and armed forces. This exemption extends to apply if you die of an injury sustained during active service which either caused or hastened your death.
- An exemption will also apply to anything that you leave to your spouse or civil partner.
- If a couple is unmarried then the situation becomes more complex. How much tax is owed will be calculated according to items such as whether a valid Will exists and whether rented accommodation is held as tenants in common or joint tenants. This is something which your Oratto member solicitor will be able to explain in detail.
- Beneficiaries are also exempt from paying inheritance tax on any sums of money gifted at least seven years prior to the testator's death. If you (the testator) dies during that seven year window then inheritance tax will be payable on the gift.
Ways to mitigate inheritance tax
There are some caveats on what is allowed and what can be kept back from tax.
- You are permitted to give away up to £3,000 per year and this will remain free from inheritance tax.
- You also won't pay any tax on sums of money that you give away to political parties or charities.
- Setting up a trust can also protect you from tax liabilities. This can be complicated and needs to be overseen carefully by a lawyer to ensure that all the relevant criteria are being met.
These are three of the major ways of potentially reducing your tax bill; however it's imperative that every stage of the process is completed thoroughly and competently. Just one small mistake could see your personal inheritance tax planning proposal in ruins.
If you have any concerns or queries then you can contact an inheritance tax planning lawyer through Oratto for clarification. Whatever you are facing we will have the experience you need.
Contact Oratto today for focused advice specifically where you need it, from our highly qualified member solicitors.