Why Inheritance Tax planning and Wills are essential

27 May 2020

Death and leaving our loved ones behind are something nobody likes to think about. You can however relieve some of the burden on those you leave behind with a little sensible planning and organisation of your financial affairs. If you have multiple assets, for example property and company shares, then it’s even more essential that you plan well and protect your loved ones from unnecessary worry and costs.

Why have a Will?

If you die without leaving a Will, your estate will be dealt with under the Rules of Intestacy.

Who inherits your assets will be determined by statute and you will have no control over who inherits your assets, it will be determined by statute alone.

Having a legally valid Will can ensure that your estate is inherited exactly as you want it to be and can prevent adding further stress and strain on your loved ones. With the right advice, Wills can often be structured to be Inheritance Tax efficient.

Inheritance Tax (IHT)

IHT is based on the value of your estate when you die, and any gifts made during the previous seven years. The current death rate of IHT is 40%, which could result in a significant proportion of your estate not passing to your loved ones.

Planning to minimise your IHT bill

There are several Government allowances for allowing people to pass on assets without incurring a tax bill.

The first £325,000 of value of your estate is exempt from IHT.

A further exemption of up to £175,000 is available to offset against the value of your main residence. This is only available if your main residence is left to a lineal descendant (e.g. your children or grandchildren) and will be reduced if the total value of your estate exceeds £2M by £1 for every £2 of value in excess of £2M.

Assets passing to your spouse or into a life interest trust for your spouse will be exempt from Inheritance Tax.

Certain assets may qualify for either 50% or 100% Business Property Relief (BPR) and Agricultural Property Relief (APR).

However, there are other ways to reduce your IHT bill by planning ahead. Some people may choose to spend more during their lifetime to minimise the value of their estate, whilst others gift money or assets to their family. Below are just some of the things to consider.

1. Making gifts

You can give away money or assets to reduce your estate. Gifts have different IHT rules depending on the value of the gift, when you made it and who you gave the gift too. Contact us to find out exactly what you can give and too whom to minimise your IHT bill.

2. Trusts

Trusts can allow you to give gifts to other people whilst keeping control of your money. You get to choose who receives it, when they receive it and what they can use it for.

3. Life insurance & pensions

Buying a life insurance policy that pays a lump sum on death to either provide for your family or to pay the IHT bill that will be incurred.

Pensions are a tax efficient way of investing throughout your lifetime and unlike cash savings, pensions sit outside your estate and will not count towards your inheritance tax threshold when you die. This makes pensions a great way of leaving money to your family but ensures they keep as much of your money as possible.

How can Fortus help?

Our Personal Tax experts can help you to start planning now by;

  • Identifying and quantifying your current IHT exposure.
  • Maximising your eligibility for IHT reliefs and exemptions.
  • Minimising potential IHT liabilities.
  • Advising on making gifts during your lifetime.
  • Assisting with planning your Will.
  • Making your affairs easier for your loved ones to deal with upon your death.

So, why not contact Richard Roberts and the team today on 01733 891896 and see how Fortus can help you effectively plan for the future.