As you plan for the future, you will probably want to arrange your affairs so as to pass on as much of your assets and wealth to your loved one, with as small an inheritance tax burden as possible.
Inheritance tax is levied on the estate of certain deceased individuals. HMRC figures show that while in fact only 4% of estates paid the tax in 2020/21, this is set to rise to 7% of estates by 2032/33. For more and more people, understanding inheritance tax planning is becoming increasingly important.
What is inheritance tax planning?
Inheritance tax planning involves creating a strategy to minimise the tax due on your estate when you pass away, allowing you to pass on more of your wealth to your loved ones. Your estate comprises all the assets, money, and property you own.
The main goal of inheritance tax planning is to reduce the size of your taxable estate. While there are some tax-free allowances for certain estate values, many estates exceed these thresholds, making tax planning essential.
If you’d like specific guidance on current IHT thresholds and allowances, we’d be happy to discuss your individual situation.
How to reduce inheritance tax due on estates
If your estate is larger than the allowances, inheritance tax may be applied to your estate when you die. However, there are several options available to you to protect your assets.
Give gifts
A relatively simple way to reduce your inheritance tax bill is to give gifts during your life. However, for gifts to be considered outside of your estate, there are certain rules that you need to follow:
- Annual allowance: You can give a limited amount each tax year that won’t count towards your estate.
- Wedding gifts: You can also make tax-free contributions to loved ones when they get married or enter a civil partnership, within set limits.
- Seven-year rule: If you live for seven years after giving a gift, it may be exempt from IHT. Gifts given within three to seven years before death may qualify for taper relief, which could reduce the tax rate.
For advice tailored to your specific circumstances, we can help you understand how these rules may apply.
Donate to charity
Donating to charity is another way to reduce IHT on your estate. Donations may be deducted from the value of your estate before tax is calculated, which could allow you to leave more to your family. Additionally, leaving a certain percentage of your estate to charity may reduce your inheritance tax rate.
To explore how charitable giving might affect your IHT rate, contact us for advice.
Setting up a trust
Setting up a trust can be an effective way to manage your estate and reduce IHT. By placing assets into a trust, they may be excluded from your estate for tax purposes. However, the IHT treatment varies depending on the type of trust. Each person’s circumstances are unique and different types of trusts come with their own benefits, limitations and compliance obligations.
If you are contemplating transferring assets into a trust then it is essential that you seek our expert advice so that your plans can be best tailored to your own circumstances.
Get in touch with us
Inheritance tax planning isn’t only about reducing tax liabilities; it’s about making sure that your legacy lives on in the way you intend to benefit your loved ones and causes that are important to you. Proper planning can offer your beneficiaries a greater financial peace of mind.
Whether you’re considering gifting assets, exploring charitable donations, or looking into trust options, a well-thought-out inheritance tax plan can make a world of difference. By putting measures in place early, you not only reduce the risk of an unexpected tax bill but also create a clear path for the distribution of your assets. It’s a way of taking control, preserving your wishes, and helping ensure that the people and causes you care about are well taken care of.
At GHLD, we understand that inheritance tax planning can feel daunting. The rules are complex, and every decision can have a lasting impact on those closest to you. That’s why our team is here to guide you through the process, offering tailored advice and solutions that reflect your unique circumstances and wishes.
Let us help you secure the future you want for your family and loved ones. Contact us today to explore your options and create a plan that aligns with your goals. Together, we’ll make sure that your legacy is preserved for generations to come.
