Inheritance tax is paid on the estate of someone who has passed away, and includes all property, money, and possessions. Understanding inheritance tax, its implications, and the exemptions available is essential for effective financial and estate planning. Proper knowledge of inheritance tax regulations can help individuals and families reduce tax liabilities and ensure that their assets are distributed according to their wishes. Seeking professional advice from financial planners or estate lawyers can further assist in navigating complex tax laws and developing comprehensive estate plans tailored to specific needs and objectives.
What is Inheritance Tax and Who Needs to Pay it?
Inheritance tax is a charge on the value of a person’s estate on death. Inheritance tax may also be payable in lifetime in some cases, such as certain lifetime gifts or gifts to companies.
The standard rate of inheritance tax is 40%, which can significantly impact the value of an estate passed to beneficiaries.
Everyone has an automatic allowance of £325,000, called the “Nil Rate Band”, under which no inheritance tax is payable. However, if the value of your estate exceeds the £325,000 allowance, then inheritance tax will be payable on any excess at the rate of 40%.
The burden of inheritance tax falls on the deceased’s estate. It will therefore be for the deceased’s executors or administrators to pay any inheritance tax due to HMRC before distributing the remaining assets to the deceased’s beneficiaries.
Exemptions and Reliefs That Reduce Inheritance Tax
In addition to the nil rate band, there are a number of exemptions, allowances and reliefs that may further reduce the amount of inheritance tax payable.
We have covered some of the exemptions below:
- Any part of your estate that you leave to your spouse or civil partner is exempt from inheritance tax, provided they are a UK resident.
- Any amount left to a charity is exempt from inheritance tax, which can also reduce the taxable value of the remaining estate.
- An additional “residential nil rate band” is available where a person leaves their residence at their death that is closely inherited by the lineal descendants, either outright or on certain trusts.
- The transfer of business assets, which can be up to 100% on some assets.
- Gifts of up to £3,000 per year are tax-free. This can be carried over to the next year once if you do not use it, allowing a total gift of £6,000 every second year.
- Small gifts of up to £250 to as many individuals as you like each tax year without them counting towards your estate.
- Regular gifts made out of your income, not your capital, that do not affect your standard of living can be exempt.
- If you survive for seven years after making a gift to someone, the gift is generally exempt from inheritance tax.
The Role of a Solicitor in Estate Planning
A solicitor specialising in estate planning is invaluable in navigating the complexities of inheritance tax. They can provide detailed advice tailored to your specific circumstances, including the potential impacts of inheritance tax on your estate. They can also help structure your estate in ways that maximise the use of available exemptions and reliefs, potentially saving significant amounts in taxes. They ensure all legal formalities are correctly followed, including the drafting and witnessing of wills, setting up trusts, and the execution of any necessary legal documents. They can even help review and update your estate plans in response to any changes in the law, your personal circumstances, or financial situation.
Peace of Mind With Specialist Solicitor Support
Inheritance tax planning is not just about reducing taxes but ensuring that your assets are distributed according to your wishes in the most efficient way possible. With the right exemptions and professional advice, you can significantly lessen the burden of inheritance tax on your beneficiaries, ensuring that more of your estate goes to those you care about. Engaging a solicitor to help with your estate planning is a wise decision that can lead to the best outcomes for you and your loved ones. Proper planning today ensures peace of mind tomorrow.
Should you need advice on inheritance tax and exemptions associated with inheritance tax, then look no further than our experts at Gillhams Solicitors. Here we will be able to provide you with everything you need to know about inheritance tax exemptions and even help you deal with them long term. Simply get in contact with us today by phone on 0208 965 4266, by email at solicitors@gillhams.com or by completing our online contact form and we will happily discuss your enquiry in more detail with you to determine the most suitable steps going forward.