Although it’s not something we like to think about, the truth is that we need to sort out our finances to avoid issues for family and friends when we’re gone. One such problem can be with Inheritance Tax whether you want to leave money to the next generation, or you intend on donating it, this tax can come into effect.
The Inheritance Tax Threshold
According to the UK Government, you currently don’t have to pay this tax if your estate is below the £325,000 threshold. The standard rate at the moment is 40% on anything that is over this threshold. An example given by the Government is an estate worth £500,000 would be taxed at 40% on £175,000.
What To Do
So, what can you do to help those you leave your money to, to get the most they can? Well, there are a few ways you essentially stop the taxman or at least prevent them from taking such a large cut; these include:
1. Gifting To Your Partner
As aforementioned in the official Government ruling, you can leave everything to your spouse or civil partner as a gift. There would be exceptions to this, however, if they were born outside the UK.
2. Giving Away Your Estate Incrementally
Another method is to incrementally give away your money to family or friends over time while you’re still alive. For larger amounts, you can still be liable for Inheritance Tax. However, this is voided if you live a further seven years.
In a similar vein to gifting, you may wish to donate your estate to different charities. Leaving a portion of your estate to charity can also reduce the rate of tax on the rest of your savings.
4. Setting Up A Trust
Putting your assets into trusts, which can only be accessed by the person you leave them to under your own terms, will mean they’re exempt from Inheritance Tax – as the trust isn’t part of your estate anymore.
5. Further Advice
Before you start looking into these approaches, there are other important considerations to make, like making a will and determining how your money will be passed on. As such it’s a smart move to seek professional advice from experts like Tilney. Such financial advisors can help you put the right steps in place first before you look at ways to lower your Inheritance Tax.
So, don’t put off sorting this important process; act now and make sure you have a plan in place, so your money goes where you want it to, without unnecessary taxation.