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Personal Tax Planning

Inheritance Tax and Estate Planning

 What is inheritance tax?

If you are passing on an estate* worth more than £325,000 following your death, then inheritance tax (IHT) will likely have to be paid. The full rate is 40% and will need to be paid by the recipient.

*Your estate basically includes the value of property, savings and general possessions.

How does inheritance tax work?

The value of your estate is calculated and the nil-rate band (£325,000) exemption is deducted. The balance is then subject to the appropriate inheritance tax rate.

Is it important to plan for inheritance tax now?

More often than not, yes. If you gift some of your assets during your lifetime, for example, they may be exempt from inheritance tax. So thinking about his sooner rather than later could save your estate from being eroded by a large inheritance tax bill.

How can planning for inheritance tax help me?

Let’s imagine you want to pass on your estate to your children. Upon your death, they would be responsible for settling the tax that arises from inheriting your estate – and this could put them in a difficult financial position.

The good news is that there are things that can be done to plan ahead. This way, the recipient/s of your estate don’t end up with a crippling tax bill.

An individual’s estate benefits from the nil-rate band exemption of the first £325,000 – as well as any unused nil-rate band from the estate of a deceased spouse or civil partner.

There are also numerous other exemptions and reliefs that may help to reduce – or remove – charges related to inheritance tax.

For example, gifts made between three and seven years before your death might be exempt from inheritance tax. Also, gifts to charities might bring down the value of your estate (where inheritance tax is concerned), or help to reduce the inheritance tax rate from 40% to 36%.

Working with a tax specialist like Kirk Rice means that you can plan and make the right decisions. And you get the peace of mind your estate won’t be eroded by a large long-term inheritance tax obligation.

Watch our Lasting Power of Attorney video

In under ten minutes this video set gently introduces you to this sensitive topic, helping you understand the benefits of a Power of Attorney as well as things you need to think about when drawing one up.


Things that need to be considered for inheritance tax planning
  1. The value of your estate now and how that may change over time
  2. What you require for your own financial security
  3. Your family’s needs


Is my business subject to inheritance tax?

In general, most businesses benefit from a 100% business property relief. This means that no inheritance tax needs to be paid on the value of your business. However, assets that you own that are used in a business (in which you are a partner or have controlling interests) also attract business property relief at 50%.





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