One shouldn’t have to necessarily wait for the government to scrap inheritance tax to protect their family’s wealth and keep it beyond the reach of HMRC.
It is true that this tax was initially intended for those who were quite wealthy but with time even the middle income earning groups have come within its cold grasp.
Presently those living in middle England are the worst hit as the value of their properties makes them liable to pay inheritance tax even if they have no other asset or little cash. Bringing their net worth under the threshold of £300,000 is not possible while they are still living as they cannot give away their home.
The number of cases in which the deceased’s estate has had to pay nearly 40 percent inheritance tax on everything they own above the threshold value has been on the rise. In the last five years, the number of homes whose value exceeds the IHT threshold has nearly doubled.
Following are some ways in which you can keep most of your wealth in the family by making sure that you pay minimum inheritance tax:
Make a Will
If the deceased hasn’t left behind a Will, the intestacy laws will decide who should receive the assets and money in your estate. In England and Wales, following an intestate death the spouse receives the first £125,000 along with an interest for life in the remainder of the estate with the personal possessions. What is left is divided into equal shares and given away to the children.
Such a situation can be easily averted by getting in touch with a solicitor and enquiring about how much does a Will cost and how one can go about drafting it.
Writing a Will makes it possible for you to leave behind assets for people other than your spouse and children such as siblings, grandchildren etc. Transferring assets to your spouse is IHT free. One can also use the Will to set up a family trust but with changes in law you may need to make changes in your Will accordingly.
Changing Ownership of your Home
It is quite common for couples to own their home in joint ownership which means that each of you own the entire property. You can change this ownership status to tenants in common making both of you half owners of the property.
Owning the property jointly means that the property will automatically be transferred to the surviving joint owner after one of them passes away. By putting an end to the joint ownership you can legally give away your share to someone else upon death.
Doing this is extremely easy and the only thing you may have to consider before making such a bequest is what should become of the tenancy of the surviving spouse after you pass away.
Give with Warm Hands
HMRC allows each person to give away gifts worth £3000 annually in total to different people and £250 a year to any number of people. If you haven’t given away any gifts in the last year then it can be utilised in the current tax year. If a couple has not made use of this scheme then they can give away gifts worth £12000 in this year.
Check your Pension Arrangements
Any lump sum payment that you receive if you happen to die while still in service can be passed directly to the person whom you nominate as the employers’ pension is normally written in trust. The benefits related to pension will be subjected to income tax even though they do not affect IHT.
In order to ensure that your pension pot passes tax-free to the person whom you nominate as beneficiary the personal pensions should be written in trust as well. This provision is not available to those have already bought annuity at 75 or are in poor health and it therefore makes sense if you do not delay the process and do it at the earliest.
You may not be able to avoid inheritance tax completely by following the above measures but you should be able to minimise it and ensure that the wealth is preserved in your family.