More and more people are discovering that the money and property they have worked so hard for all their lives is liable for Inheritance Tax. A tax which use to only concern the very rich is now affecting many of us but few know that Inheritance Tax is, with the right planning, entirely and legally avoidable.
Does everyone pay Inheritance Tax?
No currently you will only pay Inheritance Tax on your assets over £325,000. This is known as your Nil Rate Band (NRB). If you are married you can add your two NRBs together that gives a married couple allowance of £650,000.
This means that if your joint Estate is not worth more than £650,000 you can relax as you have no Inheritance Tax bill to worry about.
I thought the allowance was going up?
Yes, the previous chancellor George Osborne changed the rules to give an extra top up. This goes up year on year from now until 2021 when it will eventually give you each an extra allowance of £175,000 each to pass your home to your children or grandchildren. This means in 2021, you will be able to pass your family home up to a total value of £1,000,000 to your children; if you are a married couple.
Do I have to worry about IHT if my Estate is over £650,000
In short, yes, you need to get advice. You would need to make sure your Will is written with Inheritance Tax in mind. Making sure that assets are passing in a way that does not trigger a tax bill. To take advantage of the top you would need to make sure that the home passes in the correct way to your children or grandchildren. If most of your wealth is not in your main property you may not be able to take advantage of the top up. You will then have to look at other ways of reducing your Inheritance Tax bill.
What about if I have over £1,000,000 in my Estate?
Now you’re talking! Estates over £1,000,000 are likely to trigger significant IHT charges on death. If you don’t have at least a simple Will in place on the death of the first spouse you will have a significant bill to be paid whilst the second spouse is still alive. This of course can be crippling for the person left behind.
For Estates this size it may be sensible to make some early gifts to your children of some money or property so that it is not considered yours when you die. You have to make the gift and live for at least seven years to take full advantage of this strategy.
It may also be possible to use Trusts either in your Will or whilst you are still alive. The most important thing is to seek proper advice as the rules can be a bit complicated.