Inheritance Tax Advice, Norwich, Norfolk
At Digby Nash Tax Estate and Tax Planning, we are committed to providing our clients with the highest level of Inheritance Tax Planning . Our mission is to help our clients navigate the complexities of estate planning.
What is Inheritance Tax Planning?
Inheritance Tax Planning is about putting proactive planning in place to make sure your Estate is held and passed down to your beneficiaries in the most tax-efficient way possible. Family wealth is often subject to Inheritance Tax as it passes down each generation, eroding that wealth for you and your loved ones over time. However, Inheritance Tax is largely a voluntarily tax, which can be legitimately mitigated, meaning you no longer have to worry about losing 40% of your wealth on death. However, Inheritance Tax is largely a voluntarily tax, which can be legitimately mitigated, meaning you no longer have to worry about losing 40% of your wealth on death.
All of this is achievable with the right expert guidance, utilizing Trust Laws, and true Estate Planning. Trusts have been enshrined in English Law for Centuries and exist to protect your wealth so that the right money really does go to the right people, at the right time and then stays there!
There is normally no Inheritance Tax to pay if either:
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The value of your Estate is below the £325,000 threshold
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You leave everything above the £325,000 threshold to your spouse, civil partner, a charity, or political party.
Even if the Estate value is below the threshold, you will still need to report it to HMRC through Probate.
We each have an Inheritance Tax Allowance of £325,000, any assets above this threshold are normally subject to Inheritance Tax at 40% upon our death. Your unused Inheritance Tax Allowance can pass to your spouse or civil partner, meaning that couple have a total Inheritance Tax Allowance of £650,000. In addition to this, since 2017, the Residential Nil Rate Band Allowance has been introduced. This allows you to claim an additional £175,000 of tax-free allowance, if you give away your home to your children (including adopted, foster or stepchildren) or grandchildren. This means your Inheritance Tax threshold can increase to £500,000 or £1,000,000 for a couple. There are many pro’s and con’s to claiming this extra Inheritance Tax Allowance which you need to be aware of before committing to do this, so please make sure you take advice on this new legislation.
How can I reduce the amount of tax paid?
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Leaving a legacy to a charity
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Putting your assets into a trust for your heirs
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Leaving your estate to your spouse or civil partner
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Paying into a pension
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Regulary givving away £3000 a year in gifts
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Using life insurance to pay Inheritance Tax
Taking out a life insurance policy to pay some or all of an Inheritance Tax bill can make things easier on your family when it comes to sorting out your estate after your death. It can help protect your home and other assets from having to be sold to pay an IHT bill, which must usually be paid before probate is granted. This gives you the peace of mind that you’re not leaving your family and friends with a hefty tax bill to pay when you die.
Normally, IHT needs to be paid before probate can be issued. But where property is concerned, HMRC might accept staged payments until the property is sold. Or a bank might release money if it’s paid direct to HMRC to pay an IHT bill. A delay in payment can result in HMRC charging penalties and interest on the amount of the Inheritance Tax which should have been paid.
Most life insurance policies will count as part of the estate unless your policy is written ‘in trust’, which can often be done at no extra cost when taking out your policy.
This means that any money is paid out to your beneficiaries and not to your legal estate. So any payout won’t count towards your threshold and won’t be subject to IHT. This would avoid a lengthy probate process, so your beneficiaries will get their money much more quickly.
A whole-of-life insurance policy is often used for this purpose, which remains in force until the policyholder’s death, as long as
What are the current Inheritance Tax rates?
The standard Inheritance Tax rate is 40%. It’s only charged on the part of your Estate that’s above the tax-free threshold.
Your Estate is worth £700,000 and your tax-free threshold is £325,000 + £175,000 of Residential Nil Rate Band Allowance = £500,000. The Inheritance Tax charged will be 40% of £200,000 (£700,000 minus £500,000) = £80,000 of Inheritance Tax to be paid.
The Estate can pay Inheritance Tax at a reduced rate of 36% if you leave 10% or more of your Estate to charity in your Will.
There are many steps you can take to reduce or mitigate your Inheritance Tax liability and protect your legacy for your loved ones and beneficiaries. Here are some steps you can take. You should seek professional advice to understand which one, or combination of steps, can minimize your liability.