1. Write a Will
Setting up a Will should be the first step in any estate-planning exercise, not only to make certain that matters are dealt with in a tax-efficient way but to ensure that your wishes are carried out. Having a Will means you avoid relying on the intestacy rules that come into play where there is no Will. Effectively the law decides what happens to the estate, which can lead to financial anxiety for the surviving spouse along with a possible immediate charge to inheritance tax (IHT) on the first death.
2. Check that you actually have an IHT liability
It may sound obvious, but it is worth considering when IHT actually applies. Each individual has a tax-free allowance of £325,000, known as the nil-rate band. IHT only applies to the value of the estate above this at a rate of 40% on death.
However, transfers between husband and wife are exempt from IHT and if the nil-rate band is not used on the first death, this means that the value of the estate on the second death that will be exempt from IHT doubles to £650,000.
3. Take advantage of exemptions
You can give away up to £3,000 a year, which is known as your annual allowance, and this will be immediately exempt from IHT. There is also a small gift exemption, meaning you can give up to £250 to as many people as you like.
4. Take out life cover
One of the simplest ways of providing funds to pay the inheritance tax liability is to establish a whole-of-life insurance policy. This is designed to pay a sum equal to the tax liability into trust where the money is exempt from IHT and will be available for beneficiaries to pay the tax due. Call us for a quotation.
5. Consider making gifts to charity
Gifts to Charity are exempt from IHT, but if you give 10% of your net estate (the total estate value less the £325,000 nil-rate band) then the rate of IHT that applies to the remaining estate falls to 36%.
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