Effective planning for inheritance tax is essential to prevent expensive surprises for your loved ones in the future. As leading inheritance tax advisors in London, we are aware of the impact not making the right considerations for this tax can have and are keen to ensure we continue to provide the best guidance and services for our customers. To support this, we have created this post where we will share the vital details on inheritance tax; what it is, who pays it and why it is essential to consider this tax when writing your will.
What is Inheritance Tax?
Inheritance tax is a tax on the estate of someone who’s died. It is a tax levied on the transfer of assets and is typically based on the total value of the estate left behind by the deceased individual. The value of the assets is made up of cash in the bank, investments, property or business, vehicles, payouts from life insurance policies, minus any debts.
The rate of inheritance tax is currently 40% and is only charged on the part of your estate that’s above the £325,000 threshold. Considering that threshold, normally there is no tax to pay if the value of the estate is below £325,000 or if everything over £325,000 is left to a spouse or a civil partner. There would also normally be no tax to pay if everything over £325,000 is left to a charity or a community amateur sports club.
For example, if your estate is worth £540,000 inheritance tax charged would be 40% of £215,000 (£540,000 minus £325,000). There are some variations to this basic premise such as a reduced rate of 36% tax on some assets if 10% or more of the estate is left to a charity in your will or an increase in the threshold to £500,000 if you give away your home to your children (including adopted, foster or stepchildren) or grandchildren.
These nuances to your personal circumstances are where we highly recommend you seek inheritance tax advice to support you to make the correct plans.
Who is Responsible for Paying Inheritance Tax?
The responsibility for paying inheritance tax generally falls on the beneficiaries who receive the assets or properties from the deceased individual. If there is a will, an executor, will have been appointed to administer the deceased’s estate and is typically responsible for calculating the tax liability, filing the necessary tax returns, and ensuring that the tax is paid. The executor plays a crucial role in managing the estate’s assets and fulfilling the tax obligations.
How can Inheritance Tax be Considered when Writing a Will?
Inheritance tax, currently charged at 40%, is a significant consideration in estate planning, and you should carefully evaluate its implications when creating your will. An awareness of the basics of inheritance tax, including who is responsible for paying it and the available exemptions and reliefs, is crucial for effective tax planning.
Effective planning at the stage of writing your will is invaluable. Such planning includes;
- Reviewing available inheritance tax allowances and ensuring these can be utilised in the best way.
- Determining if any exemptions apply to the estate, or any assets within the estate. For example, assets passed to a spouse or civil partner; gifts to charities; and certain business and agricultural assets are exempt from inheritance tax.
- Assessing steps that can be taken during an individual’s lifetime to mitigate a tax liability (without, of course, leading to adverse outcomes during that person’s life).
We review all the above with you when preparing a Will and create a solution that provides the best outcome for you, your family and your individual circumstances.
As inheritance tax advisors in London we can provide valuable insights and help navigate the complexities of inheritance tax, ultimately ensuring that the estate is distributed according to your wishes while minimising tax burdens on the beneficiaries.
Do you Need any Further Inheritance Tax Advice?
If you are looking for inheritance tax advice in London we recommend you talk to a member of our highly experienced team. We will review all aspects of estate planning to support you to avoid expensive surprises for your loved ones in the future.
We are always mindful of the sensitive nature of these discussions and work with you based on how much information you want to provide to achieve the best results for you and the loved ones you leave behind.
You can make an enquiry using this contact form, or by calling 020 8965 4266 or by email at solicitors@gillhams.com.
