Inheritance Tax can cost loved ones hundreds of thousands in the event of your death, yet it's possible to legally avoid huge swathes of it, or possibly pay none at all. The government assesses how much your estate is worth; this includes the cash you have in the bank or in investments and any property or business you own. If this exceeds the Inheritance Tax threshold set by the Chancellor, you (or technically your estate) will pay tax at 40% on the extra when you die. From April 2012 this amount is reduced to 36% if you leave at least 10% to a charity. The dramatic rise in house prices from 1997 to 2007, coupled with growth in personal wealth has put many people above the inheritance tax (IHT) nil rate band. Despite the recent decline in house prices, people may still have estates liable to IHT and may not even know it.
Using a life insurance policy to pay some or your entire Inheritance Tax bill can make things easier for the people you leave behind. You can use life insurance to put money aside for the Inheritance Tax bill, making it less likely that things like your home will have to be sold. If you die within seven years of making a gift, the gift could still count towards your Inheritance Tax bill. If you’re planning to reduce your Inheritance Tax bill by giving away your property before you die, a term insurance policy can help to cover the Inheritance Tax bill if you die within the seven year period.
If you have a life insurance policy, not held in trust, or with no beneficiary nominated, when you die this will be added to your estate. As a result, if your assets are worth more than £325,000 up to 40% of the value of the policy could go straight to the Inland Revenue on your death. However, if you place the policy in trust, the funds can be held outside your estate and can be available free of IHT to anyone you dictate. Furthermore, if you list your spouse, children and grandchildren as potential beneficiaries, the funds are available to each generation in turn and will not be chargeable to IHT as the trusteeship passes on to the next generation.
You’ve worked hard to build your home and everything else you cherish. Seek advice from the experts and start to protect your assets. With any financial planning it’s important to ensure your estate is paid out to the right person and at the right time. A Last Will and Testimony is the only way to ensure your wishes are carried out and your estate passes on to future generations in the way that you intend. It is of great importance, therefore, that the effects of the tax are taken into account in overall financial planning. You should probably include some form of A power of attorney.
For more specific help and to talk through you options, call our team of expert advisers today