After world war two the inheritance tax raised to 80 pc. The current crisis that Covid-19 has created many are of the view that the inheritance tax percentage will rise in the following year. It would be wise if we carefully do some tax planning in order to save some money.
What is inheritance tax? Inheritance tax is the tax that is paid on the estate of someone who has died. The value of the estate includes money, property and other possessions such as shares etc.
The inheritance tax is on the value of the estate above 325000.If your estate value is below that there will normally be no inheritance tax, and if your estate value is above the threshold the only the excess will be subject to inheritance tax. The partners can use each other's allowances to increase the threshold to £650 000.
The inheritance tax for the tax year 2020/2021 is 40% however, If you leave 10% of your estate to charity the tax rate applied to the value of your estate would be reduced to 36%.
Inheritance tax is usually straight forward however, some planning can mitigate the inheritance tax and save money:
The Capital Gains tax that arise when a gift is given would mean that giving a gift to reduce the value of the estate will not save you money. However, in some situations when capital gains tax cannot arise you can give part of your estate as gifts.
For example, in the present situation of economic crisis when there is a drop in the property prices, this might be the right time to transfer your property as a gift. Assets such as shares which are currently standing at a loss due to stock exchange crash can be transferred to a family member or a family investment company without incurring any capital gains tax.
It would be also be a wise idea to transfer some of your gifts which do not qualify for inheritance tax relief such as business property relief and agricultural property relief
You can consider transferring to a trust. You won't have to pay the capital gains tax immediately. It can be deferred. A reduction in the value would mean that you can now able to make a gift up to a value of your available inheritance tax nil rate band.
If you want a list of gifts which you can transfer without any tax implications you can go to our website and follow the link https://www.taxaccolega.co.uk/factsheets/capital-taxes/inheritance-tax-a-summary
Another point to note is that there are certain jobs which are classed as risky and are exempt from inheritance tax. For example firefighting, armed forces. Government has also classified NHS fighting for Covid-19 on the front line to be risky and therefore they are also exempt from inheritance tax.
If you own any assets overseas and you are UK resident non domiciled individual we can sort out your taxes and help you with tax planning. We can even assist you where you can make use of double tax treaty. If you need any advice in planning please do not hesitate to call us at 020 8127 0728 or email us at info@taxaccolega.co.uk