How To Plan For Inheritance Tax

First, we should know what an inheritance tax is. An Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, possessions, and money. In UK, the standard Inheritance Tax rate is 40% and it is only charged on the part of your estate that's above the tax-free threshold which is currently £325,000. 

Inheritance tax planning is an essential aspect of estate planning that involves preparing for the taxes that may be imposed on your assets and property after your passing. There are many effective tax planning strategies, which you can use to reduce the amount of tax payable by your beneficiaries, ensuring that more of your wealth is passed on to your loved ones. It is always better to work with a financial advisor when implementing inheritance tax planning strategies as it can help you determine the most effective approach for your unique circumstances and ensure that your assets are distributed according to your wishes.

Strategies used in inheritance tax planning.

One common strategy used in inheritance tax planning is gifting. This involves transferring assets to your beneficiaries while you are still alive, which can help to reduce the value of your estate and, in turn, the amount of inheritance tax payable. For example, if you have a property worth £500,000 and you gift it to your children, the value of your estate would be reduced by £500,000, thereby lowering the amount of inheritance tax payable.

Another strategy is to make use of trusts. Trusts are legal arrangements that allow you to transfer assets to a trustee, who will hold them on behalf of your beneficiaries. By using trusts, you can ensure that your assets are distributed according to your wishes, while also reducing the amount of inheritance tax payable. For example, if you transfer your property to a trust, it will no longer form part of your estate, thereby reducing the amount of tax payable on your estate.

For example, let's say you have an estate worth £2 million, and you want to pass on as much of your wealth as possible to your children. By working with a financial advisor, you decide to gift £500,000 worth of assets to your children, reducing the value of your estate to £1.5 million. You also establish a trust to hold your property, further reducing the value of your estate. By implementing these strategies, you can significantly reduce the amount of inheritance tax payable by your beneficiaries, ensuring that more of your wealth is passed on to your loved

Inheritance tax planning is an essential aspect of estate planning that can help you reduce the amount of tax payable on your assets and property. By implementing effective tax planning strategies, such as gifting and the use of trusts, you can ensure that your assets are distributed according to your wishes and that your loved ones receive as much of your wealth as possible.

For more information about tax and areas where your company can become tax efficient, contact Cheylesmore Accountants today to enable us to provide you with an end-to-end service including advice on how optimise your company’s financial affairs. With various packages containing services ranging from just bookkeeping through to Virtual Finance Office and Tax Investigations, you can rely on us to deliver a quality experience and provide comfort that your tax affairs are in order.