Without effective planning, your inheritance tax bill can amount to large sums of money that will drastically decrease the final amount. Inheritance tax planning (IHT) can allow you to provide for your family and dependants and will give you an element of control over how your heirs use their inheritance.
There are of number of ways you can reduce the amount of inheritance tax due from your estate. Each of these ways requires strategic planning and input from a team who thoroughly understand the technicalities of the law, so you may want to consult a professional if inheritance tax planning is something you are seriously looking into. Below is an overview of some of the methods a professional may suggest to you.
1) Make your will early
No one wants to think about passing away but avoiding making a will can have consequences for the people you leave behind. Making a will can help you with inheritance tax in a number of ways. A will enables you to leave all your wealth to a spouse or partner, which means you can take advantage of a total inheritance tax redemption. On top of that, if your estate qualifies for the residence rate nil band this could mean you are entitled to a higher tax-free threshold.
2) Make use of available reliefs and exemptions
One of the most straight forward ways to reduce your IHT liability is to make the most of exemptions and reliefs available to you and your specific circumstances. An inheritance tax planning company will analyse your assets and help you make use of the reliefs and exemptions available to you.
3) Understand the impact of moving away from the UK
If you are thinking about moving away from the UK it is important that you seek legal advice. Moving from the UK does not automatically mean your estate will be exempt from income tax, your estate may well be still liable. You should consult an inheritance tax planning professional to find out for certain, before you jet off to another country.
4) Take out insurance
If paying inheritance tax is unavoidable then you may want to take out an insurance policy to help you pay the bill when it comes around. Certain insurance policies can be tailored to provide control over how your heirs use their inherited wealth. They may be combined with a specific type of trust that provides an ‘income for life’. In this situation the estate can pass to the next generation without being liable to income tax.
Insurance may be a good option of inheritance tax planning for those moving overseas, as it is more widely recognised than trust planning.