Writing a Will and planning who will inherit all of your money, land and possessions on the event of your death is very important. But when you are doing this it is essential to consider the amount of inheritance tax your loved ones might be saddled with because of how your Will has been written.
When someone dies the government assesses his or her estate (this includes all of the money, land and property) and the person inheriting it is expected to pay 40% tax on anything that exceeds the tax threshold in the UK.
When writing your Will it is very important to also consider inheritance tax planning. There are many things that you can do to reduce the amount the taxman receives; below is a guide to some of the key ways you can achieve this.
Meeting the Threshold
The tax threshold in 2013 in the UK is £325,000, although this changes slightly every year. For example, in 2014 this will move up to £329,000. This means that anything inherited below this amount of money will be completely tax-free.
With inheritances its important to try and make sure you get as much as possible.
However, anything about this will be subject to tax of 40%, which is quite a considerable amount. If your assets will not add up to more than this, then you simply don’t have to worry about your loved ones paying inheritance tax. On the other hand, if your assets will add up to more, then there are a few things you can do to minimise the amount that is taxed.
Gifts to Charity’s or Political Parties
One of the first things you might want to consider is leaving money to a charity or political party. These gifts are completely tax free and if you give away 10% of your overall assets in this way then the rest of your inheritance tax will be reduced to a 36% tax charge instead of 40%.
This is a great way to reduce the inheritance tax bill, and definitely something that you might want to consider when writing your Will.
£250 a Year
Gifts of no more than £250 a year to one individual person are completely inheritance tax free. This means that you could leave a yearly birthday or Christmas present of £250 to each of your loved ones without having to pay a penny of tax.
You want to make sure your inheritance goes as far as possible.
Not only does this save on tax but it is also very much appreciated by the recipient. A few years of £250 guaranteed every birthday can go a long way in helping people out, as well as being a sweet memory of your love for them.
Consideration of Marriage
Although rarely done in this country, there is an inheritance tax exemption for anyone who leaves money to a person if they will marry someone else. For example, a person may state in their Will ‘I will leave X amount of money if X person marries my daughter’.
There is a tax threshold on this, which is currently a limit of £5000 from parents, £2,500 from grandparents and £1000 from anyone else. If you know your son or daughter plans on marrying a certain person but you just won’t make it to the wedding day, then this could be an important loophole for you to consider.
Planning for your inheritance and minimising tax liability is very important; the death of a loved one is already hard enough without having to wave goodbye to 40% of their assets to the taxman. You may want to write your own inheritance tax plan following these points, and there are many other ways to reduce the amount of inheritance tax your loved ones pay. The best way to fully understand the options is by seeking professional advice and guidance.