3 Things To Know About Inheritance Tax
Inheritance tax is a tax that is levied by the government on estates that are passed down from one generation to the next. This tax can be quite costly, so it's important to understand how it works and what you can do to minimise its impact on your estate. Here are a few things to know about inheritance tax:
Limits and thresholds for Inheritance Tax
There is no Inheritance Tax to pay if the value of your estate is below £325,000, also known as the 'nil rate band.' There is an additional tax-free allowance of £175,000 for those that leave their main residence to a direct descendant. It's also been verified following the Spring Budget 2021 that these allowances will be frozen until April 2026. Anything over these allowances is usually taxed at 40%.
However, there are several more rules that may help you save money on your IHT bill, such as if you leave everything over this amount to your spouse, civil partner, or a charity. Couples may double this up to £1,000,000 on second death by transferring any unused allowances to their surviving partner.
Ways to save on Inheritance Tax
It's crucial to plan ahead if you want to avoid paying any inheritance tax. It's worth making a will, as under ‘intestacy rules,' your spouse may be restricted in how much of your estate he or she could inherit if you died without one.
You can also reduce the cost of any IHT bill by ‘gifting' or 'giving away' money while you still have access to it. Under government rules, you may give a certain amount of money each year without incurring IHT liability - this is referred to as your ‘annual exemption.'
Gifting money and Inheritance Tax
You can give up to £3,000 per tax year and make any number of gifts of £250 or less for each person. You may ‘gift' up to £5,000 to a child on the occasion of a wedding or civil partnership, as well as £2,500 to a grandchild and £1,000 to anyone else. You must present the gift before the event.
While you can give away larger amounts, such as a chunk of cash for their first house, don't forget that this may be taken into account towards the value of your estate and to wipe out any potential IHT liability, you'll need to live for another seven years.
How long have you got to pay Inheritance Tax?
The executors of your will are generally in charge of sorting out your financial affairs and paying IHT. And, within six months of the end of the month in which the individual died, any inheritance tax payment must be made.
There are several straightforward methods to shield your family's money from HMRC. Annual exemptions, allowances, insurance, direct gifts, and trusts are all ways to minimise inheritance taxes.
Of course, there are many alternatives to choose from, so it's essential you discover one that works for you. In light of this, and given that inheritance tax can be a difficult topic, it's worth consulting with Schofield's financial experts. At Schofield, we know the best ways to reduce your IHT bill and can ensure that your family (not HMRC) gets as much as possible.
The value of any investment with Schofield Money will be directly linked to the value of the funds chosen. These may fall as well as rise, you may get back less than the amount invested. The bases and levels of taxation, and the reliefs from taxation can change at any time. They are usually dependent on individual circumstances.