SJP Inheritance Tax planning
It may come as a shock to discover that a large proportion of your wealth might be subject to Inheritance Tax (IHT) when you die.
This includes all of your assets such as the family home, investments, life assurance plans not in Trust and even old family heirlooms.
A financial adviser can help minimise the impact of inheritance tax through strategies such as gifting, setting up trusts and taking advantage of tax allowances and reliefs.
When do you pay Inheritance Tax?
Your estate will be subject to IHT if, when you die, if it exceeds the individual nil-rate band which currently stands at £325,000.
Calculating how much your family will have to pay is often, although not always, simple.
Count up the value of all the assets, subtract the nil-rate band (and the residence nil rate band if applicable - see below) and what is left will be taxed at up to 40% - paid for by your estate.
If your spouse dies before you without fully using their nil-rate allowances, the unused proportions can be carried forward to use when you die.
Use our Inheritance tax calculator to help.
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
How does the residence nil-rate band work?
With the family home often making up a large percentage of an estate, in 2017 the government introduced an additional nil-rate band to sit on top of the £325,000, known as the ‘residence nil-rate band’ as mentioned above.
The current residence nil-rate band is £175,000 per individual, although it is capped at the value of the home if this is lower.
This means that if you leave a home worth at least £175,000 to your children (including adopted, foster or stepchildren) or grandchildren, they won’t have to pay IHT on the first £500,000 of their inheritance (£325,000 nil rate band + £175,000 residence nil-rate band).
If you are a married couple or in a civil partnership then you will have two nil rate bands and two residence nil rate bands between you, making it possible for you to pass up to £1,000,000 of your assets to children or grandchildren without any IHT.
As with most things in life, IHT is rarely as simple as in the example we’ve given. There are a lot of complicated rules and calculations to follow when you’re working out how much IHT your family will have to pay, but we’re here to help.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
What to do about Inheritance Tax
Careful IHT planning is all about arranging your affairs so that as much of your estate as is possible, passes to who you want to receive it, rather than to HMRC.
The use of trusts and wills in IHT planning can help maintain flexibility and control over any arrangements that are made.
* Will writing involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills are not regulated by the Financial Conduct Authority.
Protecting all that you hold dear
There are a number of methods that can be used to help reduce the amount of IHT your family will have to pay.
Gifting and/or the use of trusts are often considered key strategies in helping you pass on as much of your wealth as possible to your family.
Making a financial gift can be a valuable way to reduce the amount of Inheritance Tax your loved ones will have to pay when you die.
A Trust places the right money, in the right hands, at the right time.
Trusts are not regulated by the Financial Conduct Authority.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.