Inheritance Tax (IHT) can have a significant impact on the wealth you leave behind. With careful planning, you can reduce the burden on your loved ones and ensure your assets are passed on as efficiently as post. In this post, we break down UK inheritance tax, who it affects, and how you can start planning today.
What is inheritance tax?
Inheritance Tax is a tax on the estate of someone who has died. Your estate can include real estate, financial assets, personal possessions and businesses. The current IHT charge is 40% on the value of an estate above a certain threshold.
Key Thresholds
- Nil-Rate Band (NRB): £325,000 per person
- Residence Nil-Rate Band (RNRB): Up to £175,000 (if passing a main residence to direct descendants)
These thresholds can be combined between spouses, allowing up to £650,000 threshold.
Inheritance tax is always changing
Make sure to consult with a financial professional for IHT planning, or check out https://moneyhelper.org.uk/en for free information and help.
Inheritance tax is only due when the value of the deceased’s estate exceeds their available threshold. In some cases, there will be no inheritance tax payable. It is important to note that spouses can inherit estates tax free from one another, qualifying gifts made 7 years before death are also exempt.
There are several legitimate ways to reduce the amount of inheritance tax your estate may owe. These include:
- Gifting
You can give away up to £3,000 per year tax-free. Gifts can include money, household and personal goods, for example, furniture, jewellery or antiques, a house, land or buildings, stocks and shares listed on the London Stock Exchange, unlisted shares you held for less than 2 years before your death.
- Trusts
Placing assets into a trust can help reduce the value of your estate, though this must be done carefully and with professional advice. There are many different types of trusts available which will fit your individual needs.
- Life Insurance
A life insurance policy written in trust can provide funds to pay an IHT bill, reducing the financial burden on beneficiaries. Consult with a professional to calculate your inheritance tax liability and how that relates to the insurance policy you are taking out.
Why Succession Planning Matters.
Failing to plan can mean a large portion of your estate ends up with HMRC instead of your family. At Fields Financial Planning, we work with individuals and families to develop tailored plans that protect your family’s wealth, minimise tax liabilities and support your family’s intergenerational financial goals.
How Fields Financial Planning Can Help.
Every family situation is different. Whether you’re just beginning to think about your inheritance or already have a complex estate, we can help you:
– Understand your estates exposure
– Explore reliefs, exemptions, and gifting options
– Build a long-term estate plan in line with your goals