Planning for death is an important part of life, despite being a topic we may not like to think about. Inheritance Tax (IHT) is a tax that is paid on an individual's estate value after their death. Despite the frustration with Inheritance Tax (IHT), the good news is that there are legal means to reduce or even avoid the tax bill entirely. It simply requires some planning and seeking the assistance of a tax adviser.
One such way to do so is ‘Making a Will’. Making a will is a crucial aspect of this planning process. It's not just about deciding who gets your possessions, it's about ensuring that your children don't have to share their inheritance with HMRC. After all, why should the taxman benefit from your hard-earned assets?
Control over the distribution of assets
One of the significant advantages of making a will is that it allows you to distribute your assets as per your wishes. Without a will, your assets will be distributed according to the intestacy rules, which may not align with your preferences. By making a will, you can specify who should inherit your assets, whether it's your spouse, children, siblings, or other beneficiaries.
This means that you can ensure that your loved ones receive the assets that you intended for them, and that your estate is distributed fairly and efficiently. It can also help to avoid disputes among family members, as your wishes are clearly documented and legally binding.
Overall, making a will gives you the power to control the distribution of your assets and ensures that your loved ones are taken care of according to your wishes.
Without proper planning, your loved ones could be left with a significant tax bill.
Contact our experts at UK Property Accountants today to learn more about our Inheritance Tax Planning services and start protecting your assets for future generations.
Making Gifts to Your Loved Ones
You can use your will to assess what your estate value will look like. You can make lifetime gifts to your loved ones, which can help to reduce the value of your estate and, therefore, the amount of IHT payable on death.
You can also use your exemptions available on lifetime gift like Annual exemption, small gifts exemption, Wedding gifts exemptions and Normal expenditure out of your income.
Effective Usage of Tax Allowances and Exemptions
You will be able to plan the usage of tax allowances and exemptions while you draft the will. For example, you can take advantage of the nil-rate band and plan how to utilise this to pass on a certain amount of your estate tax-free.
You can also use the residence nil-rate band, which provides an additional tax-free allowance for your main residence and decide on whom you can pass to make the best use of it.
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Setting up trusts
Setting up trusts can be an effective strategy for reducing the amount of IHT payable. You can use trusts to pass on assets to your beneficiaries while retaining some control over them. This can help to reduce the value of your estate and, therefore, the amount of IHT payable. This can be decided in an early stage once you draft a will.
The Will of a deceased person can be changed for tax planning purposes. This can usually be done in the case where you would want to change the beneficiary of the will.
If you leave your estate to your child, there may be Inheritance Tax payable and then when your child wants to leave the estate to their child, there may again be Inheritance Tax implications. Hence, to avoid paying Inheritance Tax multiple times, your Will can be changed, and the estate can be directly given to your grandchildren.
The variation to your Will can only be done within two years of your death.
By making a will, you can make lifetime gifts to your loved ones, use tax allowances and exemptions effectively, and take advantage of strategies such as setting up trusts to reduce the amount of IHT payable.
Seeking professional advice from a tax adviser can help ensure that you are taking the right steps to reduce the amount of IHT payable.
At UK Property Accountacts, our experienced advisors will work with you to understand your goals, assess your tax liability, and develop a personalised plan that meets your needs. Contact us today to learn more.
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