The concept of inheritance tax has been quite controversial in the UK. It seems unfair to impose tax on property left to heirs and beneficiaries by a dead relative, even when tax has already been paid on the assets.
The government of the UK is receptive to these concerns, at the same time has very fair reasons for imposing the tax.
Contact us if you want to know whether your estate will attract IHT after your death.
Why Must You Pay Inheritance Tax
Inheritance tax in the UK is less than 1% of the annual intake of tax by the UK government. Yet, they impose this tax for valid reasons.
The receipts from inheritance tax go straight to the Treasury and are used to fund government expenses.
Inheritance tax is actually to regulate public behaviour.
The government of the UK redistributes wealth by imposing an inheritance tax. Inheriting wealth can be a disincentive to contribute to society, which is a loss for the economy. Inheritance tax ensures that the money is being put to good use and for the public. It also ensures better inheritance tax planning to save more.
The UK government can influence people’s buying behaviour through taxes. They can add extra taxes on things that pollute the environment such as certain vehicles. They can reduce taxes on electric cars through tax credit. Similarly, things like cigarettes, alcohol, gambling, and junk food would be taxed more.
Encouraging Savings and Investment
Taxes can help people save more through tax breaks for those who put money in special savings accounts. Personal pensions and children’s ISAs are both deductibles from taxable income. It promotes better inheritance tax planning using methods, suggested by the government, that is in everyone’s interests.
Ways to Avoid Inheritance Tax
While there’s inheritance tax to pay, there are also ways to get out of it. Consult a trusted inheritance tax planner to help you work out the details.
Proper estate planning can help you lower your inheritance tax bill –
Write a will
Write your will with instructions about the distribution of your assets. If you can’t decide how to distribute your assets, the government will decide for you. If you leave 10% of your estate to charity, your family pays less in inheritance tax.
Seek financial advice
Get the help of a reputed estate planner for financial advice. They will help you to plan your estate in a way you can enjoy it, leave enough for your family, and pay the minimum in taxes.
Make a trust
You can draw a trust to plan inheritance taxes. Put assets in it for your loved ones. This is a legal agreement that you can use while it is ongoing. You can decide the trustees and the beneficiaries. There are lots of different types of trusts. Your financial adviser will help you set one up since it can be expensive and difficult on your own.
Give your money away
Give away £3,000 worth of money every year to avoid tax on it. You can also give away £5,000 towards children’s weddings and £2,500 towards grandchildren’s weddings You could give away more but remember that there is a seven-year slab for a tax rule.
Grow your pension account
Pension savings can be passed on to family members tax-free. Pensions are usually a part of your non-taxable estate. However, if your beneficiaries inherit your pension after you have crossed the age of 75, they’ll have to pay income tax on any withdrawals. Focus on withdrawing only from ISAs and other savings.
Pay Inheritance Tax in Instalments
Inheritance tax can be paid in annual instalments for up to 10 years. You can pay in instalments on the inherited house, shares, securities, inherited business and agricultural property.
You need to mention that you’ll pay in instalments when you fill your inheritance tax account form IHT400. Your yearly payments will be due on the same date that you paid your first instalment.
Calculate Inheritance Tax
Inheritance is taxed at 40% of the total assets at the time of death. There could be many deductions and allowances which you’ll need to factor in.
Enlist the help of an experienced estate planner to calculate your inheritance tax. Don’t pay more in taxes.
The Bottom Line
Planning your estate may seem tedious and boring, and something you can put off. But you must not.
Estate planning is easy with experts. They will just collect your documents and draw up your legal agreements, as well as advise the best ways to avoid tax.
We have professional estate planning and inheritance tax planning services in the UK. Don’t hesitate to reach out to us.