In recent years, rising asset values and property inflation have merged to push a higher share of estates above the nil-rate band for Inheritance Tax (IHT). While the residence nil-rate band helps on the one hand, the IHT threshold is, nevertheless, frozen at £325,000 per individual, and government receipts continue to rise. In this respect, IHT is not a tax solely reserved for the rich – or even the moderately wealthy.
In spite of the fact that an increasing number of estates are paying IHT, families are not necessarily destined to pay over the odds. For instance, those with sufficient assets to trigger an IHT liability on death could utilise the exemption – in other words, they could give away up to £3,000 worth of gifts each tax year without them being included within the value of their estate.
That said, it’s important to be aware of what does or doesn’t constitute being part of an estate, otherwise families could end up paying more IHT than needed.
Another solution for minimising the knock-on effect of IHT is to take out a ‘whole of life’ insurance policy. This pays a lump sum on death, and when the policy is written in trust, the payout can help offset or dispense with an IHT bill.
A wealth of knowledge
Indeed, apathy and ignorance of estate planning might be welcome news for the Treasury, which depends on it to ensure its tax receipts – yet the extensive lack of knowledge might be a cause for concern for potential heirs. Seeking professional advice can be advantageous in soothing those woes.
A financial adviser can support families with the transfer of wealth in a methodical and tax-efficient way – establishing trusts, life insurance and the like – while at the same time ensuring that the person tasked with arranging their estate has sufficient income to sustain their usual standard of living.
Informed advice could see more estates released from the burden of IHT – not to mention the fact that bereaved families could be saved from paying unnecessary tax.
For support with wealth management, retirement planning or Inheritance Tax planning, contact your Wellesley adviser on 01444 244551 or email firstname.lastname@example.org. Passing on more of your estate to the next generation is simpler than you might think.