Inheritance Tax Planning

When thinking ahead for the future, it is important to ensure that all of your affairs are in order. This is why mitigating your inheritance tax is particularly crucial. When planning what happens to your estate once you're gone, getting the right advice from professionals about what your specific tax options are is a vital step towards a positive outcome for you and your family.

Inheritance Tax

Understanding Inheritance Tax

The inheritance tax is a tax on the estate of someone who has recently passed away. The taxable amount ultimately depends upon the value of the estate in question. The tax takes into account your personal assets; this includes investments, properties or businesses, vehicles, life insurance, and bank balance - although this is minus any debts.

The current inheritance tax nil-rate (NRB) is marked at £325,00; however, if your estate is valued below this threshold, or you leave your assets, which are worth over the specified amount, to a spouse, civil partner, or a charity, you will no longer be taxed.

Alternatively, if neither of these options applies to you, and your estate is valued above the estimated £325,000, you will be taxed 40% once you pass away. Keep it in mind that the tax threshold may increase depending on your specific circumstances. In some cases, the amount can rise from £500,000 to £1 Million.

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How to Value an Estate

When the time comes to value an estate following the passing of a loved one, there is a specific process that you will be required to undertake. To value an estate, you must compile a list of all of your relatives' assets and then work out the subsequent value whilst also ensuring you deduct any debt from the final estimation.

HMRC has the ability to request these records from up to 20 years after the inheritance tax has been paid. Therefore, keeping the records of your calculations, the estate agents' calculations, and other important documents safe is crucial. Additionally, alongside personal assets, it is important to note any gifts, whether cash, investment or otherwise, that have been gifted within the seven years before your loved one's passing; in some cases, it may be requested to go as far back as fourteen years.

It is important to note that you will need to include any gifts that were received before the aforementioned time periods if it is found that your relative continued to benefit from said gift. This is commonly referred to as 'gifts with reservations of benefit'.

An example of this is if a person gave their house away but then they continued to live in it. Additionally, any outstanding debts or further liabilities will ultimately reduce the estate's value. This may include bills, mortgages, credit cards, and even funeral arrangements and expenses.

It can be a stressful and complicated process to follow, which is why we would advise you to contact our team of specialist solicitors with any questions that you may have. We will aid you to the best of our ability during this difficult time.

Inheritance Tax

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