New IHT allowances were introduced in 2017 but qualifying for them needs to be looked at as it can be complicated.
Inheritance Tax
IHT is taxation when transferring wealth. It is paid on your estate which encompasses all your assets and possessions. If they are valued at above £325,000, your loved ones will pay 40% IHT on anything over £325,000.
Married Couples
Married couples are able to transfer unused elements of their IHT nil rate band to their living partner. Equating to a joint nil-rate band of £650,000.
Additional Allowance
£175,000 worth of your main residence is also IHT free when passing on to your loved ones, increasing your threshold to £500,000 tax free.
This becomes tapered by 50% for every £1 that your estate exceeds £2m. This allowance is only viable when you leave your home directly to your grandchildren or children.
Mitigating Inheritance Tax
Firstly, making sure your will is up to date is important. Many pass on their wealth after death but gifting whilst alive can be tax efficient:
- Gifts of £3,000 each tax year are your annual exemption.
- Gifts for weddings: you can give £5,000 to a child per year, £2,500 to a grandchild or £1,000 to any person
- Gifts that are derived from regular income
- Small gifts of £250 per person per year
You can gift more than this but you must live for over 7 years for these gifts to become exempt from IHT.
If you die before 75 your pension money when transferred to your loved ones bears no tax. When above 75 it becomes taxable.
Trusts, whole of life insurance and special investment structures can also mitigate IHT. A wealth manager can advise best around this.
If you would like to give yourself the best chance of passing on a legacy that suits your family’s circumstances, arrange a Discovery Call with one of our FCA authorised wealth managers [Here]
This article is for informational purpose only. It does not constitute finacial, tax or legal advice, nor is it a recommendation to buy, sell or hold any investment. Past performance is not a guide to the future, investments rise and fall so investors could make a loss. No view is given on the present, future value or price of any investment and investors should form their own view on any proposed investment.