When you think about the value of your home and possessions, as well as your savings, that amount can soon add up!
Against that sum, you can ‘offset’ everything that you owe. That includes a mortgage, loan or any costs incurred for which you hadn’t yet received bills – such as funeral expenses. On the remaining amount, your estate will be liable for Inheritance Tax (IHT). The law requires that IHT is settled before the estate is divided to beneficiaries.
The good news is that IHT only has to be paid over a certain point. It’s still a significant tax (currently 40% of everything over the £325,000 allowance for tax year 2011/12), but there are ways to minimise this bill. That’s why getting inheritance tax planning advice from an independent financial adviser (IFA) can be so valuable.
For example, a spouse or civil partner can pass on any unused IHT allowance to the surviving spouse or civil partner – effectively boosting the surviving partner’s IHT allowance to a potential £650,000. And if you make any gifts of money or other assets (so long as they have been completely given away, and no benefit from the asset is retained by you), those assets are not counted for IHT if you survive for seven years after making the gift - there’s a sliding scale for taxing these gifts if you survive for more than three years but less than seven. These gifts are called ‘potentially exempt transfers’ and there is an annual allowance. Your IFA can help you work out the best way to plan things to make sure you eventually leave your estate as tax efficient as you can, and the sooner you can get started on planning the better - so that your loved ones can make the most of the assets and other benefits you want to pass on to them.