A Guide to Inheritance Tax

A guide to inheritance tax

Inheritance tax can be a daunting topic, but it doesn’t have to be. This guide will take you through everything you need to know about inheritance tax, from what it is and how it works, to how to plan for it and reduce your tax bill.

We’ll also look at some common misconceptions about inheritance tax, as well as some tax-saving tips and strategies that you can put into practice today.

So, whether you’re worried about the tax implications of your estate or simply want to learn more about how inheritance tax works, this guide has got you covered.

What is Inheritance Tax?

inheritance taxInheritance tax (IHT) is a tax that applies to the value of your estate that is passed onto your loved ones after you pass away.  The tax is calculated based on the value of your estate above the current threshold in the UK, and it is payable by your executor (the person responsible for administering your estate).

Inheritance tax is a complex tax, and there are a number of factors that go into determining how much tax you will need to pay. Some of these include the value of your estate, the tax rates in place at the time of your death, and any tax exemptions or tax-saving strategies that you may be eligible for.

Inheritance Tax Thresholds

In the UK, there is a tax-free threshold which applies to everyone. Currently, if your estate is worth £325,000 or less, there is no inheritance tax to be paid to the state. This amount tends to be adjusted each year based on inflation and changes in tax rates.

For estate values above £325,000, a 40% inheritance tax fee is applicable to be paid by your beneficiaries.

Whilst there are some allowances for this payment, effective tax planning is the best way to ensure your beneficiaries only have to pay the minimum charge.

Alternatively, there are some tax exemptions than can reduce the amount of inheritance tax to be paid. For example, anything above the value of £325,000 that is left to your spouse, civil partner, a charity, or community amateur sports club is tax-free.  Alternatively, if you leave your home to your children, your threshold can increase to £500,000. 

How to Plan for Inheritance Tax

Strategic tax planning can be useful to reduce the amount of inheritance tax that has to be paid by your beneficiaries. Financial advisors or specialist solicitors will often be able to provide advice and guidance on how to do this.

One way to reduce the tax bill is by setting up a trust. This can ensure that your beneficiaries will receive the maximum amount of inheritance. Setting up a trust means that you may gift part of your estate whilst you are still alive. This may be property or money. The trust reduces the amount that is subject to inheritance tax after you pass away and allows your loved ones to enjoy your assets. This is particularly effective if your estate is valued just above the nil-rate band threshold of £325,000.

Overall, inheritance tax can be a complex and daunting tax, but it is important to understand its implications and how you can plan ahead in order to reduce your tax bill. By taking advantage of tax-saving strategies you can make sure that your loved ones inherit as much of your estate as possible.

Planning your Will and Estate

Planning your will allows you to define how you want your estate to be distributed to beneficiaries.  This includes any property, money, investments, or possessions. It is important to ensure that your will is up-to-date and reflects any changes in your circumstances.

You should review your will regularly and make changes as needed. This ensures that it accurately reflects your wishes and avoids any potential disputes between beneficiaries.

When writing your will, following tax planning advice can help to ensure minimal amounts of your estate are lost to due to tax payment. This might include making donations to charities or gifts to people and organisations which are tax-free up to a certain limit. 

How can Redkite Solicitors help with Tax Planning

Redkite Solicitors understand the importance of looking out for your loved ones after your death. That’s what makes tax planning for your inheritance so important. You’ll want to minimise reductions to your beneficiaries as much as possible so they can fully benefit from the full value of your estate.

As your trusted solicitor, Redkite is dedicated to protecting your best interests and providing in-depth guidance on Trusts and their uses. With industry expertise, you can benefit from tax planning to minimise the amount of inheritance tax that will be charged on your estate.

To find out more information about effective tax planning for inheritance tax, contact Redkite Solicitors to speak to a trusted solicitor.

Final Thoughts

Inheritance tax is paid on the value of your estate when you die. This tax is applied to anything that you leave to your beneficiaries, such as property, money, or possessions.

By understanding how inheritance tax works and taking advantage of tax-saving strategies, you can make sure that your loved ones inherit as much of your estate as possible.

Redkite Solicitors is dedicated to supporting you and your family. With our expert guidance on tax planning, you can minimise the amount of tax that your beneficiaries will need to pay. To learn more about how tax planning can benefit you, contact Redkite Solicitors today.