Inheritance Tax: Essential Information
One of the things people are most concerned about with regards to the legacy they leave their loved ones is tax efficiency. Whilst leaving inherited wealth completely untaxed would surely exacerbate social inequalities, there’s no reason that you should not be as savvy as possible in terms of the estate you leave behind you and how it is inherited. As long as you are compliant with the law, you should take measures to ensure that your loved ones will receive as much of the capital you leave behind as possible.
Once the inheritance tax threshed kicks in, the flat rate that applies is, at 40%, pretty steep. Of course, when it comes to avoiding this tax, things are largely dependent on you who are intending to leave the money to. If you would be bestowing it all upon your spouse then you’ve no need to worry as married partners are entirely exempt form having to pay tax on estates inherited from each other.
If, as the majority of people do, you’d like to provide for your children upon your death, you need to think about how you can do so in a way that takes full advantage of the nil-band threshold (amounts at or under which there is no obligation to pay any tax.) The exact amount than can be given without triggering tax moves every year, but you can get around that problem by stating that you want to leave an amount “equally to or lower than the nil-band rate” in your will.
Obviously, you might have more than this to give. You can minimise the tax bill by splitting your estate. If you’re married, as mentioned above, you can give whatever you like to your partner without any issue. You can leave them the remainder after you’ve given your children the maximum amount allowed without going over the nil-rate band. This way not a penny would go into the coffer of HMRC.
You may have heard that trusts are a good way to avoid inheritance tax, but you should be wary of going down this road. In recent years that has been a big crackdown on people trying to circumvent the law in this manner.