Inheritance Tax Planning

What is Inheritance Tax

INheritance Tax PlanningPut simply, Inheritance Tax (IHT) is a tax on money or possessions you leave behind when you die, and on some gifts you make during your lifetime.

Everybody has an amount they can pass on tax free when they die, this is called the “tax free allowance” or the “nil rate band”.

Everyone in the 2011-2012 tax year has a tax free allowance of £325,000. This allowance will remain the same until 2015.

Married couples and civil partners are allowed to pass their possessions and assets to each other “tax free”, and since October 2007 the surviving partner is allowed to use both tax free allowances. This effectively doubles the amount to £650,000 that the surviving partner can leave behind before tax is paid.

Example

If you leave an estate valued at £600,000, IHT will be 40% on £275,000, the difference between £600,000 – £325,000.

However, if you are married or in a civil partnership, you can use both tax free allowances totalling £650,000 to offset against your estate when the surviving spouse / partner dies.

Who Pays the Inheritance Tax Bill

Inheritance tax that becomes due is usually paid from the estate.

When the surviving spouse or partner dies all the assets are added together. If there are outstanding debts against the estate such as mortgages, loans, funeral expenses etc, this amount is deducted from the total value of the estate to come to a net asset value.

They will then use what “tax allowances” there are against the estate’s net asset value, to determine is any IHT is due. Remember that currently anything over your allowances is paid at 40%.

How can I manage IHT for my dependants?

By planning your finances, there are ways to manage and maybe reduce your IHT exposure and also cover the anticipated IHT bill.

Please call Jan on 01706 830678 for advice, or use our enquiry form.