How do you limit the tax take after you are gone?
Lesley McKnight of Gilson Gray offers advice.
Having no arrangement for passing on your estate after you die can lead to a substantial tax liability, not to mention family disagreements and tensions. This is all best avoided, particularly at a time of heightened emotions. Failing to take tax implications in to consideration can be very costly. Inheritance Tax is a tax on the estate – the property, money and possessions – of someone who has died, and it is no secret that its rules are complex.
With research showing that by 2027 the amount of wealth passing through families will increase by 66% in the UK and with around £1,000,000,000,000 to be passed on in the next decade, it is important to understand these rules and know that your family will be financially secure after your death.
Gifting – Handing over your money
Many people don’t like the idea of a large sum of Inheritance Tax being taken from what they are leaving behind for their family. One of the most basic ways to mitigate this is to make use of the £3,000 gift allowance, while you are alive. This is also known as an “annual exemption”. Each tax year (April 6th to the following April 5th), people are entitled to give away £3,000 as a gift, without the value being liable to Inheritance Tax. This could be gifts to your spouse, civil partner or children, or perhaps leaving money to charity.
Bear in mind that if you give more than £3,000 a year per person and you die within 7 years of gifting, then gifts above the £3,000 threshold will be considered part of your estate and may be liable for tax.
Trusts – Gifts with strings attached
Another option to prevent an Inheritance Tax liability is to place your money in to a Trust. You are still giving your money away and the 7 year rule still applies, but you have more control doing this. Many people go down this route if they are leaving money to children or grandchildren but think they are too young to spend it.
The most common home for your cash here is a Bare or Absolute Trust, which allows you to appoint trustees who will keep control of all income until the beneficiaries are 18.
Get your Inheritance Tax strategy sorted
Pension pots, property handovers, life insurance, changes in home ownership and owning a business are just a few other possibilities for preventing a tax liability. The most important thing is to plan ahead. Having a good Inheritance Tax strategy will make sure as much wealth as possible is distributed in accordance with your wishes.
For any future advice you can contact Lesley McKnight, Partner with Gilson Gray LLP on 01224 011697 or by email at firstname.lastname@example.org