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How does UK Inheritance Tax affect you?

  December 11, 2015    Finances,Investments    Author

You’ve worked your whole life to provide for your family. So naturally, when you pass away, you’ll want them to inherit as much as the law allows.

Right now, under UK Law, you can leave up to £325,000 before your family has to pay Inheritance Tax. And if you’re married or in a registered civil partnership, your joint estate can reach £650,000. This means that most estates avoid Inheritance Tax altogether. But if your estate is likely to exceed the threshold, you’ll need to consider tax avoidance when you make your Will.

So how much is your estate worth?
Your estate is the sum total of your assets, minus debts. So to reach a figure, you should weigh up everything you own – including:

  • Your home and other property
  • Pension Funds
  • Life Assurance
  • ISAs and other savings
  • Stocks & Shares
  • Premium Bonds
  • Furniture, electrical goods and other resellable items
  • Family heirlooms, including jewellery and works of art
  • Tax-exempt gifts made during your lifetime
  • Your share of jointly owned assets

Next, consider your liabilities – including your mortgage, other loans and any personal or commercial debts. Now you have a net value.

That’s your estate as of today. Of course, in the future things will change. Your mortgage and debts might be settled, your property will be worth more, and you’ll probably have more money put aside. But to counter all that, the threshold could be that much higher. So for now, it’s best to consider your current liability – then your Holborn Advisor will help you make an estimate for the future.

Your options for tax avoidance
There are many ways to legally avoid or limit Inheritance Tax. It depends on personal circumstances and the value of your estate – but you should be able to use a number of the eight options listed here:

  1. Spouse or Civil Partner Exemption. If your spouse or civil partner has a permanent home in the UK, they shouldn’t have to pay Inheritance Tax – even if your estate is over the threshold.

 

  1. Charity Exemption. Any gifts that you make to a registered charity – during your lifetime or in your Will – are exempt from Inheritance Tax.

 

  1. Potentially Exempt Transfers. If you make a gift to someone, then survive for seven more years, the gift should be exempt – no matter what the value.

 

  1. Annual Exemption. You can give away up to £3,000 each year, either as a single gift or as several smaller gifts. And if you don’t use the full allowance in one tax year, you can roll it forward to the next.

 

  1. Small Gift Exemption. You can make any number of tax-free gifts of up to £250.

 

  1. Wedding and Civil Partnership Gifts. You can give a tax-free gift to the value of £1000, or more if you’re giving to your own child or grandchild.

 

  1. Business, Woodland, Heritage and Farm Relief. Your estate will qualify for some tax relief if your assets include a business, farm, woodland or National Heritage property.

 

  1. Offshore Trusts. You can pass on significant savings through a trust. It means surrendering control over specific assets, but if that’s acceptable to you, there are various options. For example:
  • If you have international assets or business interests, you can set up an International Tax Plan that pays a lower rate.
  • If you’re moving to a country with a high tax rate, you can protect certain assets before moving.
  • If your assets show long-term growth potential, you can avoid Capital Gains Tax.
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