You’ve no doubt heard the expression that the only certainties in life are taxes and death. There’s not much we can do about the latter but there is something we can do about the former, at least where inheritance tax (‘IHT’) is concerned and this article is going to share with you how that could be possible. When we die, we have a nil rate band (at time of writing) of £325,000 which is how much we can give away before inheritance tax starts being payable at 40% above this threshold. Let’s take a look at what you might be able to do to save your estate IHT if this issue is – or could be – relevant to you:
1. Spend your money. By doing this, you get it out of your estate, as long as you are not buying other assets which will contribute to your estate when you die. For example, spending £5,000 on a car (which, granted, will depreciate) will not get rid of that money from your estate – you’ve just converted one type of asset to another. Instead, spending that £5,000 on a holiday, for example, will get rid of the money from your estate.
2. Gifts subject to the annual allowance. In summary, you can give away £3,000 inheritance tax-free in a tax year irrespective of what your total net worth is. You can also give away £250 in small gifts to as many people as you like.
3. Gifts from surplus income. There are important conditions to this but if expenditure out of income (as opposed to your capital) does not affect your standard of living and there is a pattern of giving, then this may be done without being subject to IHT.
4. Get married or enter a civil partnership. Without wanting to run the risk of killing the romantic element of marriage or civil partnerships, by entering into such a legal arrangement, you may pass everything to your spouse or civil partner on your death inheritance-tax free. This is true even if you have recently won the lottery! On the “second death”, the surviving spouse or civil partner can use your nil rate band to ‘top up’ theirs so they can give away up to £650,000 IHT-free – possibly eliminating IHT altogether.
5. If point 4 above doesn’t appeal, there are IHT rules allowing you to pay towards someone else’s wedding and save some IHT that way!
6. Leaving a legacy to charity. If you make a will and leave money to charity, this will be IHT-free. Also, depending how much you leave to charity, it may also reduce the percentage that IHT is paid on the rest of your estate.
If you think IHT could be an issue for you, why not speak to a solicitor who specialises in IHT and estate planning to see what could be done to reduce, if not totally eliminate, how much IHT your estate will pay?
This article aims to supply general information but it is not intended to constitute advice. Every effort is made to ensure that any law referred to is correct at the date of publication and to avoid any statement which may mislead. However, no duty of care is assumed to any person and no liability is accepted for any omission or inaccuracy. Always seek specific advice.
Capron & Helliwell Solicitors offer a range of legal services at the firm’s Stalham and Wroxham offices near North Walsham and Norwich in Norfolk. The firm specialises in areas including family law, conveyancing and private client law including wills and probate. Capron & Helliwell Solicitors offer free family law clinics – please call 01692 581231 for further details or to make an appointment.