Inheritance Tax

It’s important, although perhaps somewhat unsettling, to be aware that when you die, your estate could be subject to inheritance tax (IHT) if it’s worth more than a certain limit (known as the inheritance tax threshold). The good news is that, with careful planning, you can reduce the amount payable. However, it can be complex which is where I come in.

Most of the clients at White Horse Financial Services are already retired, will have possibly be mortgage and debt-free (or almost) and tend to have an eye on what happens after their death, assuming that they haven’t spent everything.

IHT can therefore be something that is a very real concern, as few want to see a large proportion of their assets go to the State rather than to their loved ones.

The inheritance tax threshold is £325,000 per person, giving married couples and civil partners a joint estate of £650,000 before any IHT is payable. Under current legislation, this threshold will stay in force until April 2026 and as it has been stuck at this same level since 2009/10 it is fair to say that more and more people are finding this something they are having to face.

Good news affecting families has been the introduction of the “inherited nil-rate band” where spouses (and civil partners) could inherit any allowance not used by a partner that had predeceased them. In addition, a further allowance (aimed at covering the value of the family home) came into force in April 2017, and provides for a potential £175,000 per person to be passed on free of IHT.

In most cases tax is currently payable at 40% of everything over the IHT thresholds (with some exceptions, for example the estates of those dying in the service of their country or estates making large charitable donations)

Here’s an example of how it might work for a couple where one dies and leaves everything to their spouse (where no IHT is due) and then the second person dies leaving it all to be split between their children and grandchildren.

It is important to understand that HMRC will require their share of £168,000 to be paid before they will allow Probate to be granted and any go-ahead to be given for the other beneficiaries to receive their inheritance.

There are various ways you can reduce the size of your taxable estate, such as with lifetime gifts, trusts, charitable giving and other forms of planning.

There are even some types of investments that fall outside of the remit of IHT.

It’s important to think a long way ahead, as some aspects of IHT planning need seven years to take full effect but I also have access to other methods that can take effect over a much shorter timescale.

If this is an area you’d like my expert help with, then please get in touch.