At a glance

  • Write a will – otherwise the state will decide who inherits your assets
  • Your individual IHT allowances can be passed to your spouse or civil partner upon your death
  • Consider using your gifting allowances while alive
  • Use your pension and life cover wisely to reduce your IHT liability

At a glance

  • Write a will – otherwise the state will decide who inherits your assets
  • Your individual IHT allowances can be passed to your spouse or civil partner upon your death
  • Consider using your gifting allowances while alive
  • Use your pension and life cover wisely to reduce your IHT liability

At a glance

  • Write a will – otherwise the state will decide who inherits your assets
  • Your individual IHT allowances can be passed to your spouse or civil partner upon your death
  • Consider using your gifting allowances while alive
  • Use your pension and life cover wisely to reduce your IHT liability

After a lifetime of paying tax, no one wants to give HM Revenue and Customs (HMRC) more than they need to when they die. Yet due to inertia and a reluctance to discuss death and inheritance with loved ones, that’s exactly what can happen.

1. Make a will

A will makes life much easier for all concerned, because without one, the state will distribute your assets in accordance with the rules of intestacy.

Without a will, your estate would be divided between your spouse or civil partner and other close relatives. This could see the amount your children inherit exceed the Inheritance Tax (IHT) threshold, leaving them liable for a tax bill.

If a spouse or civil partner inherited alone, they would not face a tax liability. Their IHT allowance would rise to absorb that of their deceased partner or spouse. This means children or grandchildren could see a reduced IHT liability when they finally inherit.

2. Use your allowances

IHT is payable at a standard rate of 40% on the part of your estate that’s valued above the personal allowance threshold. In the tax year starting 6 April 2020, the individual threshold is £325,000. For homeowners, there is an additional allowance of £175,000, which is called the residence nil-rate band.

Your spouse or civil partner can inherit all of your unused personal allowance, up to £325,000, plus up to the maximum £175,000 residence nil-rate band. This means the surviving partner’s total threshold could be as much as £1 million.

Of course, the surviving civil partner or widow can only inherit the unused portion of your allowances. So, any money you give away to someone else before dying or in your will may be subtracted from the amount your partner receives.

3. Make annual tax-free gifts

You can gift up to £3,000 a year without incurring an IHT bill. This gift allowance can also be carried over for one year, but one year only. If you forget to give a friend, relative or good cause up to £3,000 one year, you can give them a maximum of £6,000 the next.

Aside from your annual £3,000 gift allowance, you can give other people one-off annual gifts of £250. There is one very useful aspect of this rule. If you have some form of regular income, such as earnings or a pension, you can give £250 to someone or a cause, providing your gifts don’t eat into your standard of living. For this reason, it’s best to keep a record just in case HMRC come asking.

You can also gift money when someone close ties the knot. The value of these presents is limited to £5,000 for a child, £2,500 for a grandchild and up to £1,000 for anyone else who is getting married. The only stipulation for these gifts to be exempt from IHT is that they must be given before the wedding or civil partnership ceremony goes ahead.

4. Get to know the seven-year rule

One of the perverse quirks of IHT is that your liability starts while you’re still alive. Most of us have no idea when we’ll die, but tax rules mean that when we finally pass on, any gifts made within seven years of our death are taxable, albeit on a sliding scale, known as taper relief. The amount payable in tax reduces each year until seven years have passed and there is no longer any IHT liability payable on the gift.

Giving away huge chunks of your estate while you are still alive should be considered carefully. How would large gifts affect your plans for retirement? Can you be sure you won’t need the money later in life?

5. Give to charity

Money gifted to a qualifying charity or organisation, such as an amateur sports club, during your lifetime or in your will is exempt from IHT. Also, if the amount given away is equal to at least 10% of the total net value of the estate, on death, any IHT due would be charged at a lower rate of 36%.

6. Keep out of your pension pot

Money saved in a pension can be tax-free, which is another incentive to save. If you die before age 75 and your pension remains untouched, your heirs have two years to claim your entire pot without paying any IHT.

If you die after your 75th birthday, your defined contribution pension won't be subject to IHT, but your beneficiaries will have to pay Income Tax at their usual rate.

7. Set up a trust

If you can afford it, setting up a trust that no one can touch or benefit from while you are living is a useful way to reduce IHT liability. You could arrange a trust for a child, or grandchild, so they will have money coming to them upon reaching a certain age. Alternatively, you could use the trust to support a family member who has a disability.

Trusts have their limitations. For instance, recipients could be liable for Capital Gains Tax in some circumstances, unless the trust is written into your will.

8. Get a life insurance policy in trust

Putting your life insurance policy into a trust can ensure that when you die, any life insurance payout is not subject to IHT. It normally doesn’t cost any more to ring-fence your policy so that it’s separate from other taxable assets, but any named trustee would need to outlive you in order to benefit.

The difference between standard life cover and one in trust is that the latter is usually free from taxes, such as Income Tax, which count towards your IHT bill.

And one more for luck: review your will

Even if you have a will, it is essential to take it out of the drawer every few years for a review. Things change as time passes, and it can create problems if there is a discrepancy in your will that only comes to light after you pass, such as you’ve left a huge chunk of your estate to someone who has predeceased you.

 

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

The writing of a will involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills and trusts are not regulated by the Financial Conduct Authority.

After a lifetime of paying tax, no one wants to give HM Revenue and Customs (HMRC) more than they need to when they die. Yet due to inertia and a reluctance to discuss death and inheritance with loved ones, that’s exactly what can happen.

1. Make a will

A will makes life much easier for all concerned, because without one, the state will distribute your assets in accordance with the rules of intestacy.

Without a will, your estate would be divided between your spouse or civil partner and other close relatives. This could see the amount your children inherit exceed the Inheritance Tax (IHT) threshold, leaving them liable for a tax bill.

If a spouse or civil partner inherited alone, they would not face a tax liability. Their IHT allowance would rise to absorb that of their deceased partner or spouse. This means children or grandchildren could see a reduced IHT liability when they finally inherit.

2. Use your allowances

IHT is payable at a standard rate of 40% on the part of your estate that’s valued above the personal allowance threshold. In the tax year starting 6 April 2020, the individual threshold is £325,000. For homeowners, there is an additional allowance of £175,000, which is called the residence nil-rate band.

Your spouse or civil partner can inherit all of your unused personal allowance, up to £325,000, plus up to the maximum £175,000 residence nil-rate band. This means the surviving partner’s total threshold could be as much as £1 million.

Of course, the surviving civil partner or widow can only inherit the unused portion of your allowances. So, any money you give away to someone else before dying or in your will may be subtracted from the amount your partner receives.

3. Make annual tax-free gifts

You can gift up to £3,000 a year without incurring an IHT bill. This gift allowance can also be carried over for one year, but one year only. If you forget to give a friend, relative or good cause up to £3,000 one year, you can give them a maximum of £6,000 the next.

Aside from your annual £3,000 gift allowance, you can give other people one-off annual gifts of £250. There is one very useful aspect of this rule. If you have some form of regular income, such as earnings or a pension, you can give £250 to someone or a cause, providing your gifts don’t eat into your standard of living. For this reason, it’s best to keep a record just in case HMRC come asking.

You can also gift money when someone close ties the knot. The value of these presents is limited to £5,000 for a child, £2,500 for a grandchild and up to £1,000 for anyone else who is getting married. The only stipulation for these gifts to be exempt from IHT is that they must be given before the wedding or civil partnership ceremony goes ahead.

4. Get to know the seven-year rule

One of the perverse quirks of IHT is that your liability starts while you’re still alive. Most of us have no idea when we’ll die, but tax rules mean that when we finally pass on, any gifts made within seven years of our death are taxable, albeit on a sliding scale, known as taper relief. The amount payable in tax reduces each year until seven years have passed and there is no longer any IHT liability payable on the gift.

Giving away huge chunks of your estate while you are still alive should be considered carefully. How would large gifts affect your plans for retirement? Can you be sure you won’t need the money later in life?

5. Give to charity

Money gifted to a qualifying charity or organisation, such as an amateur sports club, during your lifetime or in your will is exempt from IHT. Also, if the amount given away is equal to at least 10% of the total net value of the estate, on death, any IHT due would be charged at a lower rate of 36%.

6. Keep out of your pension pot

Money saved in a pension can be tax-free, which is another incentive to save. If you die before age 75 and your pension remains untouched, your heirs have two years to claim your entire pot without paying any IHT.

If you die after your 75th birthday, your defined contribution pension won't be subject to IHT, but your beneficiaries will have to pay Income Tax at their usual rate.

7. Set up a trust

If you can afford it, setting up a trust that no one can touch or benefit from while you are living is a useful way to reduce IHT liability. You could arrange a trust for a child, or grandchild, so they will have money coming to them upon reaching a certain age. Alternatively, you could use the trust to support a family member who has a disability.

Trusts have their limitations. For instance, recipients could be liable for Capital Gains Tax in some circumstances, unless the trust is written into your will.

8. Get a life insurance policy in trust

Putting your life insurance policy into a trust can ensure that when you die, any life insurance payout is not subject to IHT. It normally doesn’t cost any more to ring-fence your policy so that it’s separate from other taxable assets, but any named trustee would need to outlive you in order to benefit.

The difference between standard life cover and one in trust is that the latter is usually free from taxes, such as Income Tax, which count towards your IHT bill.

And one more for luck: review your will

Even if you have a will, it is essential to take it out of the drawer every few years for a review. Things change as time passes, and it can create problems if there is a discrepancy in your will that only comes to light after you pass, such as you’ve left a huge chunk of your estate to someone who has predeceased you.

 

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

The writing of a will involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills and trusts are not regulated by the Financial Conduct Authority.

After a lifetime of paying tax, no one wants to give HM Revenue and Customs (HMRC) more than they need to when they die. Yet due to inertia and a reluctance to discuss death and inheritance with loved ones, that’s exactly what can happen.

1. Make a will

A will makes life much easier for all concerned, because without one, the state will distribute your assets in accordance with the rules of intestacy.

Without a will, your estate would be divided between your spouse or civil partner and other close relatives. This could see the amount your children inherit exceed the Inheritance Tax (IHT) threshold, leaving them liable for a tax bill.

If a spouse or civil partner inherited alone, they would not face a tax liability. Their IHT allowance would rise to absorb that of their deceased partner or spouse. This means children or grandchildren could see a reduced IHT liability when they finally inherit.

2. Use your allowances

IHT is payable at a standard rate of 40% on the part of your estate that’s valued above the personal allowance threshold. In the tax year starting 6 April 2020, the individual threshold is £325,000. For homeowners, there is an additional allowance of £175,000, which is called the residence nil-rate band.

Your spouse or civil partner can inherit all of your unused personal allowance, up to £325,000, plus up to the maximum £175,000 residence nil-rate band. This means the surviving partner’s total threshold could be as much as £1 million.

Of course, the surviving civil partner or widow can only inherit the unused portion of your allowances. So, any money you give away to someone else before dying or in your will may be subtracted from the amount your partner receives.

3. Make annual tax-free gifts

You can gift up to £3,000 a year without incurring an IHT bill. This gift allowance can also be carried over for one year, but one year only. If you forget to give a friend, relative or good cause up to £3,000 one year, you can give them a maximum of £6,000 the next.

Aside from your annual £3,000 gift allowance, you can give other people one-off annual gifts of £250. There is one very useful aspect of this rule. If you have some form of regular income, such as earnings or a pension, you can give £250 to someone or a cause, providing your gifts don’t eat into your standard of living. For this reason, it’s best to keep a record just in case HMRC come asking.

You can also gift money when someone close ties the knot. The value of these presents is limited to £5,000 for a child, £2,500 for a grandchild and up to £1,000 for anyone else who is getting married. The only stipulation for these gifts to be exempt from IHT is that they must be given before the wedding or civil partnership ceremony goes ahead.

4. Get to know the seven-year rule

One of the perverse quirks of IHT is that your liability starts while you’re still alive. Most of us have no idea when we’ll die, but tax rules mean that when we finally pass on, any gifts made within seven years of our death are taxable, albeit on a sliding scale, known as taper relief. The amount payable in tax reduces each year until seven years have passed and there is no longer any IHT liability payable on the gift.

Giving away huge chunks of your estate while you are still alive should be considered carefully. How would large gifts affect your plans for retirement? Can you be sure you won’t need the money later in life?

5. Give to charity

Money gifted to a qualifying charity or organisation, such as an amateur sports club, during your lifetime or in your will is exempt from IHT. Also, if the amount given away is equal to at least 10% of the total net value of the estate, on death, any IHT due would be charged at a lower rate of 36%.

6. Keep out of your pension pot

Money saved in a pension can be tax-free, which is another incentive to save. If you die before age 75 and your pension remains untouched, your heirs have two years to claim your entire pot without paying any IHT.

If you die after your 75th birthday, your defined contribution pension won't be subject to IHT, but your beneficiaries will have to pay Income Tax at their usual rate.

7. Set up a trust

If you can afford it, setting up a trust that no one can touch or benefit from while you are living is a useful way to reduce IHT liability. You could arrange a trust for a child, or grandchild, so they will have money coming to them upon reaching a certain age. Alternatively, you could use the trust to support a family member who has a disability.

Trusts have their limitations. For instance, recipients could be liable for Capital Gains Tax in some circumstances, unless the trust is written into your will.

8. Get a life insurance policy in trust

Putting your life insurance policy into a trust can ensure that when you die, any life insurance payout is not subject to IHT. It normally doesn’t cost any more to ring-fence your policy so that it’s separate from other taxable assets, but any named trustee would need to outlive you in order to benefit.

The difference between standard life cover and one in trust is that the latter is usually free from taxes, such as Income Tax, which count towards your IHT bill.

And one more for luck: review your will

Even if you have a will, it is essential to take it out of the drawer every few years for a review. Things change as time passes, and it can create problems if there is a discrepancy in your will that only comes to light after you pass, such as you’ve left a huge chunk of your estate to someone who has predeceased you.

 

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

The writing of a will involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills and trusts are not regulated by the Financial Conduct Authority.

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