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Inheritance Tax

Inheritance Tax

7 Ways to Manage your Inheritance Tax with RG Law

Inheritance tax is an important topic for anyone who may be receiving an inheritance in the future. Whether the inheritance is coming from a spouse or civil partner, family member, or life insurance policy, it is essential to understand how much you may have to pay and what exemptions are available regarding inheritance tax.  In all cases, a lawyer or solicitor specialising in this area of law is the key to getting the best advice.

Working with RG Law can help ensure that you receive the best advice and service when it comes to managing your inheritance tax liability. Read on to get an overview of what inheritance tax is, who pays it, how much must be paid, and how RG Law can assist individuals in understanding their obligations and managing their liabilities.

Planning ahead can help minimise the impact of a deceased's estate on loved ones. In the UK, inheritance tax (IHT) is a levy imposed on the estate of deceased individuals which exceeds a certain threshold. This tax-free threshold or 'nil-rate band' is currently frozen at £325,000 until April 2028. However, only a small percentage of estates are liable for IHT due to this generous allowance; those with high net worth may still be subject to an IHT bill if their estate exceeds £1 million.

There are various strategies available for reducing IHT liability and ensuring that assets are distributed in accordance with one's wishes upon death. Tax-free allowances can be utilised by making gifts while still alive, as well as taking advantage of additional inheritance tax reliefs such as residence nil-rate bands (RNRB), which can increase your tax-free allowance and increase your tax-free threshold.

Making a will can also reduce IHT liabilities and ensure that desired distributions are made; plus, any transfers between married couples/civil partners are not subject to IHT. A trust may also be set up to manage asset distribution after death and provide protection for beneficiaries. It should also be noted that regular gifting within one tax year of amounts under £250 does not count towards the individual's taxable amount or annual gift allowance limit (£3,000).

In addition, equity release schemes can unlock cash in property holdings while investments such as BPR-qualifying companies, AIM ISAs, and EIS/SEIS-qualifying businesses offer reduced IHT rates or exemptions from it altogether. Finally, life insurance policies may also be removed to cover expected IHT bills once all other measures have been considered.

To ensure a complete understanding of inheritance tax rules and regulations - especially when dealing with higher value estates - it's best practice to seek professional advice from an experienced lawyer like RG Law's wills and probate lawyers, who specialise in this area. Much like income tax, the goal is not to avoid paying inheritance tax altogether, as that would be illegal, but rather to minimise the burden within the confines of the law by reducing your inheritance tax rate. Start the process here.

What is an Inheritance tax bill?

If you've ever wondered what happens to your taxable estate after you pass away, you're not alone! Understanding the rules around inheritance tax liability can be complicated.

Inheritance tax is a type of Government tax that is due on certain types of property when it's passed from one generation to another. This includes money and other assets such as real estate, stocks and bonds, cars, jewelry, artwork, and more. Generally speaking, inheritance tax paid will be on the value of your estate that exceeds the inheritance tax allowance provided by law.

It's important to understand how your local laws apply when dealing with inheritance taxes so you can plan accordingly with RG Law who can help guide you through any legal questions about estate planning or probate proceedings related to a deceased loved one's estate.

 

With our expertise and assistance in navigating complex legal matters surrounding inheritances and wills, we can ensure that everything runs smoothly during this difficult time.

What are the Benefits of Working with RG Law on Inheritance Tax?

Partnering with RG Law on inheritance tax provides a hightened sense of peace of mind and powerful protection. As a firm specialising in tax law, we have the knowledge and expertise to help manage your inheritance taxes efficiently and effectively. Working with our solicitors also offers several distinct benefits:

1. You'll have a team of experienced professionals to guide you through all stages of the process.

2. You'll have access to unique strategies for minimising taxes that are tailored specifically to your individual needs.

3. You'll receive comprehensive advice on maximising any available deductions or exemptions to keep more of what you've inherited.

4. You'll receive support throughout the process, from filing paperwork correctly and accurately to ensuring deadlines are met without penalties or interest charges being incurred.

9 Ways to Reduce Your Inheritance Tax Bill

While we know we all will have to pay inheritance tax when our spouse or civil partner, or even family member passes away, lowering your inheritance tax rate is possible by planning ahead for the potential inheritance tax bill that is to come.

 

Lets take a look at 9 ways in which you can reduce standard inheritance tax rate:

 

1) Gifting Assets

Consider gifting assets to reduce your inheritance tax liability; it's an effective way to ensure your legacy is passed on in the way you want. Gifts of up to £3,000 per tax year are immediately exempt from Inheritance Tax and can be given to as many people as desired within a single tax year without being subject to IHT. Additionally, any gifts made by the deceased person that have been held for more than seven years are usually exempt from Inheritance Tax. It's important to keep accurate records of all gifts made so that they can be verified if necessary.

Care must also be taken when gifting larger amounts as this may trigger an immediate IHT liability or may become liable after seven years if the individual doesn't survive at least three years past the date of gift.

From cash and investments, to property and other assets, gifting is a great way to manage IHT liabilities and pass on wealth in accordance with one's wishes. With careful planning and consideration of all available options, individuals can pass their estate onto loved ones while minimising potential taxes owed. Tax-efficient investments are another option for reducing Inheritance Tax liabilities.

Investing in qualifying companies through Business Property Relief (BPR) can provide exemption from IHT once held for two years or more - making them ideal for high-net-worth individuals looking to pass on wealth without incurring heavy taxation costs.

Other investment options include AIM ISAs - which allow investors access into Alternative Investment Market (AIM) stocks - and Enterprise Investment Schemes/Seed Enterprise Investment Schemes (EIS/SEIS), which offer both income tax reliefs and exemption from Inheritance Tax under BPR rules after just three years' holding period. For those looking for short-term gains, a pension contribution can also be a great way of passing on wealth while benefitting from tax reliefs - but these should always be considered with professional advice beforehand due to their complex nature.

2) Tax-Efficient Investments

Investing in qualifying companies through Business Property Relief can provide IHT exemption when held for two years or more, making them an ideal option for high-net-worth individuals wanting to pass on wealth without hefty taxes. Investment options include AIM ISAs and EIS/SEIS-qualifying businesses, which may offer tax relief and IHT exemption. It's important to note that these investments usually have higher risks and require a certain level of sophistication from the investor, so it's wise to seek professional advice before committing to any investment plan.

Furthermore, the value of assets can fluctuate over time and may attract IHT liability in future even if they qualify for BPR initially; therefore, it's essential to keep estate value up to date and review regularly.

Moving forward, calculating the value of an estate accurately will help determine how much IHT needs to be paid.

 

3) Residence Nil-Rate Band

You may be eligible for the residence nil-rate band (RNRB) allowance, which could reduce your IHT liability - in fact, only 4% of estates incur any IHT at all. The allowance applies to property ownership and is an additional IHT-free allowance. In addition to property allowances, taper relief applies if the estate value exceeds £2 million.

Here are four key points to consider with RNRB:

* Leaving part or all of your estate to a UK charity, community amateur sports club (CASC), or political party can lower your IHT rate.

* Transferring your tax-free allowance to a surviving spouse/civil partner helps reduce your shared IHT liability.

* Passing on money to immediate family members through setting up trusts may also reduce IHT liability.

* Any transfer of assets between married couples/civil partners is not subject to IHT.

By understanding how the residence nil-rate band works and taking advantage of any available allowances, you can make sure that you're maximising potential savings from reducing inheritance tax liabilities from your estate when you pass away.

With careful planning and consideration of these strategies, you can ensure that more of what you leave behind goes into the hands of those who mean most to you instead of being lost in taxes. Drafting a will is essential for this purpose as it ensures that desired distribution takes place upon death and minimises potential disputes among beneficiaries after death.

 

4) Drafting a Will

Drafting a will is essential for ensuring that the desired distribution of your estate takes place upon death and minimises disputes among beneficiaries. A will should be tailored to meet the needs of the estate owner and their family, so it's important to keep it up to date as circumstances change. This includes regularly reviewing investments, assets, debts, funeral expenses, and any other factors that affect the value of an estate. In addition, wills can also be used to reduce inheritance tax liability by including charitable donations or passing on assets to spouses/civil partners who are exempt from IHT. Such strategies should be discussed with a qualified lawyer in order to avoid making costly mistakes when drafting a will.

Careful consideration should also be given to who is chosen as executor(s) of an estate, as they are responsible for carrying out its provisions after death. With these considerations in mind, creating a well-drafted will ensures that your wishes are carried out without unnecessary financial burden or disputes among beneficiaries. To further reduce inheritance tax liability, individuals may wish to consider making charitable donations during their lifetime or leaving part/all of their estate to charity upon death. Charitable donations provide tax relief, which may help lower overall liabilities and create opportunities for social good at the same time.

 

Let us help you put together a Will today! (wills)

 

5) Charitable Donations

Making charitable donations during your lifetime or upon death is an excellent way to reduce your inheritance tax liability while doing some good for the world. Donations made to UK charities, Community Amateur Sports Clubs (CASC), and political parties are exempt from Inheritance Tax (IHT). Any donation exceeding £3,000 in a single tax year may be subject to IHT and should be recorded along with all other gifts given. Additionally, leaving part or all of your estate to charity can lower your IHT rate from 40% down to 36%.

Taxpayers can also benefit from Gift Aid when donating money and property to chosen charities. This allows donors to add an extra 25p for every £1 gifted, plus any associated reliefs such as capital gains tax relief on investments. If you plan on leaving a large sum of money or property as a legacy gift, then it may be worth considering setting up a trust fund. This will ensure that the funds are managed in accordance with your wishes after you have passed away. It's important for individuals who are liable for Inheritance Tax payments to seek professional advice when making charitable donations. This way, they can understand the full implications of their decision.

The outcome of any IHT calculation is heavily dependent on the value of assets in the estate, as well as any charitable donations made by the deceased. Consulting a lawyer or other independent financial adviser or advisor can help you make informed decisions about how best to reduce IHT liabilities with charitable giving. With this knowledge in hand, it's time now to explore transferring allowances between spouses/civil partners and setting up trusts as additional strategies for managing Inheritance Tax liabilities.

Let us help with Charitable Donations! (charity-will)

 

6) Transferring Allowances

Married couples and civil partners can take advantage of transferrable tax-free allowances and residence nil-rate bands to reduce their IHT liabilities. This allows them to pass on more of their wealth to the next generation while still reducing the amount owed in taxes. Additionally, if one partner passes away before the other, any unused portion of their allowance can be transferred to the surviving partner. This means that even more of the estate can be passed on without incurring inheritance tax charged as an IHT liability.

The transferrable allowance also works for gifts that have been made during lifetime, as long as they're within the annual limit for tax-free gifts set by HMRC. If a gift has already been given in excess of this amount, it may still be possible to use some or all of the deceased's allowance to offset any potential IHT liability that could arise from it. This means that married couples and civil partners have a range of options available that will help them to reduce their potential inheritance tax threshold while still ensuring that assets are passed down through generations with minimal hassle or taxation burden.

 

The key is understanding how these allowances work and ensuring they're used correctly to benefit from them fully. To do this, seeking professional advice is always recommended, as there is a fine line between trying to avoid inheritance tax altogether versus just minimising it.

7) Setting up Trusts

You can give your beneficiaries the gift of asset protection and control by setting up a trust. A trust is a legal entity that allows you to set out how assets are distributed and managed after you pass away. Setting up a trust also ensures that any assets in the trust are protected from inheritance tax (IHT). This means that money held in trusts won't be subject to IHT when the original owner passes away. It's important to note that all gifts must meet certain criteria for them to be exempt from IHT, such as being given more than seven years before the donor's death or being made with no conditions attached.

Trusts can also help manage who receives what when you die, making it easier to distribute your estate in accordance with your wishes and protect vulnerable family members from making unwise decisions with their inheritance. The trustees of the trust can decide how much money each beneficiary receives and when it should be paid out while ensuring that all conditions placed on the assets within the trust are met.

Trustees can also ensure that any investments made are appropriate for minors or other beneficiaries who may not have enough knowledge or experience with managing finances themselves. Setting up a trust requires careful consideration and professional advice, so it's best to speak to an experienced lawyer at RG Law about your options before taking any action. They'll provide detailed information about tax reliefs available through trusts and how they could reduce IHT liability for your estate upon death.

 

Let us help you create a Trust today! (trust)

8) When do you have to pay inheritance tax

You may be wondering who's responsible for paying this particular type of tax - let's take a look!

Generally, the person or entity that inherits the property is liable for inheritance tax. In other words, whoever receives an inheritance from someone else is responsible for paying it. This could mean children, grandchildren, spouses, friends, and/or charities, depending on how the will was written.

When it comes to estates where there isn't a will in place, then the executor of the estate becomes responsible for paying any applicable taxes due to probate court before distributing assets to heirs and beneficiaries. Executors should keep records of all transactions related to settling an estate and pay any applicable taxes as soon as possible since they can be subject to interest charges if payments are late according to state laws. So, while understanding exactly how much one has to pay tax on in terms of inheritance taxes depends on many factors, including residence state law and total value of the estate - ultimately, it falls on those receiving inheritances or those acting as executors to ensure these taxes get paid according to regulations set forth by their local government bodies.

As such, consulting with a licensed attorney about these matters can be beneficial in order to understand one's legal obligations and responsibilities when dealing with inheritance tax properly. Moving forward, let's explore how much is actually owed under this taxation system.

9) How much is Inheritance tax?

It's no doubt intimidating to think about how much inheritance tax you might owe, but don't stress - there are ways to mitigate your liability and make sure you're on the right side of the law.

Generally speaking, inheritance tax is calculated as a percent of the total value of an estate:

* The amount owed in taxes can vary depending on the size of the estate

* Different deductions and exemptions may be available, depending on your individual circumstances

* It's important to speak with an attorney specialising in estate planning for more information specific to your situation.

Understanding how much you could potentially owe helps ensure that proper steps are taken when it comes time to transfer assets.

RG Law provides services such as asset protection trusts and other tools that help reduce any tax burden associated with inherited wealth. With our assistance, minimising inheritance tax is a real possibility. Knowing what's exempt from inheritance tax can also play an important role in determining one's liability.

How can I reduce my Inheritance tax bill?

It is important that we all pay our taxes, but do we want our loved ones to pay more tax than they need to?  If the answer is no, then it is worth looking at inheritance tax planning which can provide you with legal advice on how to legitimately reduce the amount of tax that is payable against your estate when your loved one(s) inherit your estate after you have passed away.


The amount of inheritance payable depends on the overall value of your estate which includes everything that you have accumulated during your lifetime i.e. money in your bank account(s), savings, properties, shares or life insurance, excluding any debts.


Estates will be subject to 40% tax if the value of the estate is above £325,000 and your civil partner, spouse or charity is not the named beneficiary.  Depending on your personal circumstances, the £325,000 tax-free cap could be higher. If you leave money to a charity, then the percentage of tax could be reduced. 

There are lots of questions to ask regarding reducing your loved ones inheritance tax bill such as: -

What are the inheritance tax rules if I am married?

What are the inheritance tax rules if I work for the police, armed forces, firefighter or paramedic?

What are the inheritance tax rules if I have children?

What are the inheritance tax rules if I have grandchildren?

What are the inheritance tax rules if I have no direct descendants?

What are the inheritance tax rules if I want to leave a legacy for a charity?

What are the inheritance tax rule if we were tenants in common?

What are the inheritance tax rules if I am not married?

If you want to know more, click here to start the process. Or you may require one of our Wills and Probate services. See below.

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