Inheritance Tax (IHT) is a tax on the estate of a deceased person that consists of all property, money and goods. Although not all do, it is necessary to understand the mechanism of this tax and its potential impact. The effects on your loved ones can be minimised by planning. This handbook will inform you about the fundamentals of IHT, amounts, and exemptions and allow you to make wise choices with your estate. You need to have a clear direction, whether you are planning the future or managing an estate at present.
If you are seeking financial services in Yeovil, understanding inheritance tax is a crucial part of the bigger financial picture.
What Is Inheritance Tax?
Inheritance Tax is a tax on the estate of the deceased. All property, savings, shares, and personal items are considered part of the property. Not all estates are taxed. When the value of the estate is less than some specific limit, then there is no tax to pay.
Exemptions and Reliefs
There are several ways an estate can reduce its tax liability. Common exemptions include:
- Spouse or civil partner exemption: Estates left to a spouse or civil partner are generally exempt from IHT.
- Charitable donations: Any part of the estate left to a registered charity is exempt.
- Residence nil-rate band: An additional allowance may be available if you leave your home to your children or grandchildren.
With these exemptions, there is a possibility of diminishing the taxable value of an estate to a significant extent. Their use tends to be challenging to plan.
Gifts and Lifetime Planning
It is also possible to reduce IHT by some of the gifts made in your lifetime. Gifts that were over seven years before your death are normally tax-free. Rules, however, do exist concerning the amount that can be given and when it should be given. One method that can be used to minimise your taxable estate is by giving money or assets to family members during your lifetime, but there are exceptions and limitations.
You should maintain a detailed record of gifts and understand how they can impact your estate.
Why Planning Matters?
A significant portion of an estate may be lost to taxes without proper planning. Wills, trusts, and other provisions can assist in the management of passing on of your estate and could save on the amount of tax. Professional advice may help determine the best course of action, depending on your specific circumstances.
People often underestimate the value of property. It is prudent to conduct a review of the value of your estate now and then, and also make provisions on how to plan in case any planning can be used.
At Whites Chartered Accountants, we provide clear, tailored financial services in Yeovil to help you make informed choices for your estate. We work with you to understand your needs and explore ways to reduce tax on your estate. If you need support with estate planning or related financial matters, our team is here to assist with clarity and professionalism.