Demystifying the Inheritance Tax Puzzle

An ongoing topic of debate and interest over my 28 years as a financial advisor is inheritance tax.

A greater number of people are trying to reduce the inheritance tax their loved ones will pay, but it’s getting much more difficult to do so.

The very nature of inheritance is a complex one and getting it wrong can have a huge impact on the amount of money your family receive – so, it is incredibly important to seek advice and get it right.

The Nil Rate Band is the amount everyone can leave without any Inheritance Tax. It is currently £325,000, but married couples can combine their allowances to leave up to £650,000 free of inheritance tax. The amount has been frozen since 2010, but it is due to start increasing with inflation from 2020. You also get an extra £100,000 each this year, increasing to £175,000 by April 2020, if you have a house, or a share in a house, up to that value and which you are leaving to children, step or foster children or their descendants. So, with the right planning, and in the right circumstances, you can leave up to £1m without any IHT liability. If you have been widowed and then remarried, you can leave even more than that, again with the right planning in place.

Once you have an idea of how much inheritance tax your family might have to pay, the next step is to look at ways to potentially reduce the bill. These fall into three categories – insuring against the tax, investing within special IHT trust schemes and simple giving away. You have to make sure you look after number one and do not let the tax tail wag the dog.
You must make a will to make sure your family isn’t left with a financial headache after your death, as you can ensure your wishes are carried out, and it can also help avoid any potential disagreements about who gets what. Your Will can also make the best use of your IHT allowances and structure your planning to help your family in the future after your day.
And don’t forget that with the limits in place now, IHT will not affect everyone and you may have other priorities. Protecting your assets during your lifetime, not just on death, is one of our main aims.

If you are unsure about inheritance tax and what would best suit your personal situation, you should speak to a financial adviser about the different options available, and a solicitor if you are looking at drawing up a will or setting up a trust. At Poole Townsend, we have both. We will work together to come up with the solution that best suits you.

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