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Inheritance Tax Planning and Strategies

Everything You Need to know on Inheritance Tax Planning in the UK

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Inheritance Tax Planning and Strategies

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When you think about it, estate and inheritance tax planning are really important. Who should be the beneficiary of your assets if you die? And what should you do to make sure your assets are passed on in a tax-friendly way? 

Estate planning is important for many reasons, but one of the most important is that it can help reduce your taxes when you die.

How to Plan Paying Inheritance Tax, UK

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When you inherit money or property, it’s important to be aware of your estate tax responsibilities. An inheritance tax is a tax paid by the inheritor on the value of their inheritance. The higher your inheritance, the more tax you will pay.

There are many ways to reduce the inheritance tax you may owe. You can make arrangements with your beneficiaries before you die, invest money in a suitable ISA account, or use a trust to avoid inheritance taxes altogether.

If you are married, you can pass on your estate to your spouse inheritance free, however, your children will have to pay inheritance tax when they inherit the property. It’s important to work out an agreement with your spouse or civil partner about who will pay the tax and when it will be paid.

You can make use of the residence nil rate band along with the nil rate band to increase your inheritance tax threshold. 

Inheritance tax planning, UK

The first step is to determine how much inheritance you will receive and calculate your taxable estate. This can be done using a variety of methods including probate fees and online calculators. 

Once you have calculated your taxable estate, you need to make decisions while your inheritance planning.

Paying inheritance tax by instalments is an option but you can avoid paying it altogether with expert inheritance tax advice in London.

Strategies for Inheritance Planning, UK

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If you are planning to inherit money or property in the UK, there are a few things you should keep in mind. One of the first things to consider is whether you will be liable for inheritance tax (IHT). If you are, how much tax you will have to pay and what strategies you can use to reduce your liability are all issues that deserve attention.

1. Use Trusts

Using trusts to avoid inheritance tax in the UK can be a very effective way of avoiding taxation on your estate. A trust is simply a legal arrangement between you and another person or organisation, which allows you to give property or money away without having to pay inheritance tax on it.

There are a number of inheritance tax planning trusts you can use to avoid inheritance tax – Bare trusts, Interest in possession trusts, Discretionary trusts, Accumulation trusts, Mixed trusts, Trusts for a vulnerable person, and Non-resident trusts.

2. Life Insurance Policy

Life insurance policies can help to pay any inheritance tax, if due. An even better strategy is to place your life insurance in a trust. You can enjoy a 5% withdrawal allowance.

3. Make Pension Plans

The benefit is that you only have to pay 20% tax at retirement as opposed to 40% inheritance tax. In addition, you receive a lump amount of 25% of your pension contributions tax-free. The disadvantage is that you won’t be able to take from your pension until you are 55 years old.

Pensions won’t be included in your estate for determining inheritance tax. You can decide whether to withdraw them starting at age 55 or pass them on as an inheritance, which is the primary objective of inheritance tax planning.

4. Give Away Gifts

You can give away gifts amounting to £3,000 each tax year. Instead of leaving your entire inheritance and paying inheritance tax, you can give away gifts over the years to keep your estate tax-free. 

The gifts you give to family members like children, grandchildren, and stepchildren, will be counted toward your inheritance tax exemption.

Your estate won’t be subject to IHT on anything you leave to charity. The inheritance tax charged on the remaining part of your estate is reduced from 40% to 36% if you decide to donate at least 10% of your assets to charity.

6. Alternate Investments Market (AIM)

It’s not surprising that managed Alternative Investment Markets portfolios have become more popular among wealthy investors given that IHT receipts exceeded 5 billion pounds last year. After two years, many AIM stocks are also eligible for inheritance tax exemption.

Infrastructure investments include things like roads and water pipelines. It might be wise to convert part of your assets into AIM ventures that are in the nil rate zone, which would significantly reduce the amount of inheritance tax due on your wealth.

Some AIM ventures are real estate, commodities, private funds, collectibles and private debt.

7. Utilise Business Reliefs

If you hold onto your assets for a few years, using business reliefs enables you to remove them from your estate, relieving you of the burden of inheritance tax. Business reliefs were initially only available to business owners. Complex problems may arise if they passed away and inheritance tax was assessed based on the value of their company.

Financial Advisers & Inheritance Tax Specialists, UK

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Employing the right inheritance tax planning and strategies can help to ensure that your loved ones are able to pass on their assets without undue financial stress. There are a number of different options available to you, so it is important to speak to a trusted inheritance tax professional for inheritance tax planning advice in London, UK. 

By taking some time to think about your options and making sure that you have planned for the future, you can ensure that your family members will be able to enjoy their assets after you’re gone without any stress. 

Get in touch with us! Our experienced inheritance tax accountants will help you with IHT planning.