In the event of your death, it’s nice to think you’ll be leaving a little something behind, gifting your hard-earned estate to loved ones. But what if the opposite is true? What if you leave behind a tax bill, or worse still, a giant headache?
No one likes paying taxes, but the thought of inheritance tax irks more than most. And whilst it may previously have been a problem reserved for the minority, rising property prices and frozen tax thresholds have resulted in a huge increase in the number of families being affected.
The good news is, there is something you can do about it, with a number of ways to reduce the amount of tax that needs to be paid.
The bad news is, a reluctance to talk about death and discuss wills and inheritance, means many people are unaware of these exemptions and fail to take advantage.
Don’t be one of them.
Whilst planning for the event of your death may not be a comfortable topic, it’s a crucial one and our expert financial advisors here at Rigby Financial will be by your side every step of the way.
Starting here, with a quick guide to everything you need to know about inheritance tax. What it is, what’s changing and, crucially, how you can plan ahead for it.
Read on to discover more or speak to a member of the team today.
What is inheritance tax?
Inheritance tax (IHT) is the tax imposed on the estate of someone who has passed away.
For many people the value of their ‘estate’ – which refers to things such as property, money, and possessions – falls below the tax-free threshold of £325,000, so there’s nothing to pay.
However, if you have an estate larger than this, the standard inheritance tax rate of 40% will be applied to anything that falls above the threshold – which could cost your loved ones thousands.
How are things changing?
Following the autumn 2024 budget review inheritance tax has been big news. Some of the key headlines include:
– IHT tax-free threshold frozen for longer
The chancellor has pushed back the date of the frozen threshold of £325,000, from April 2028 to April 2030.
– Pensions subject to inheritance tax from April 2027
Currently, and until these proposed changes come into play, the value of any pensions you left behind were not included in your estate value. However, come 2027 they may be, and any value over £325,000 will be liable for 40% tax.
What can you do?
The biggest problem when it comes to inheritance tax is a failure to plan ahead.
With careful planning, it’s possible to protect your inheritance and leave behind the legacy you wish.
Some of the key ways to achieve this include:
· Make a will
This is your fundamental first step.
Having a will in place is essential if you want to make sure your estate is left to the right people, and your wishes are carried out.
· Gift now
Why hold on to everything until you die? Sharing with your loved ones now is not only more tax efficient but it affords you the pleasure of seeing them enjoy your gift.
Each year you can gift £3000 without that sum being subject to inheritance tax. You can also give away smaller amounts (up to £250) to as many people as you like. And if the kids are getting married, you can give £5000 as a wedding gift. Additionally, it may be possible to make gifts out of your normal expenditure.
· Do your bit for charity
Like to do your bit for charity? If you make a donation to charity on your death that reduces the value of your estate by 10% or more, then the rate of IHT payable on your estate will reduce from 40% to 36% additionally gits to charities are entirely exempt from IHT regardless of the value of the gift.
· Be pension smart
Previously seen as one of the most tax-efficient ways to pass on wealth, it’s going to be the proposed changes to pensions that could really catch people out without careful planning.
In most cases under the current rules, pensions escape IHT, but from April 2027 if the proposed changes are adopted, this will no longer be the case. The result of this change is likely to have a dramatic impact on estate planning.
· Trusts
Trusts are a great way to take control of your finances and ensure your estate isn’t subject to IHT.
For example, if you’re not convinced the grandchildren will spend money gifted now wisely, you can place it into a secure trust fund until they are older (and wiser!). Allowing you to secure both your legacy and their future.
· Whole life protection
Looking for complete reassurance? With so many potential complications and unknowns, the worry of being hit by IHT can be significant. Which is why it’s highly recommended to take out a life assurance policy. Careful planning on how a life policy is structured needs to be undertaken to ensure that the policy achieves its objective.
In the event of your death, this can be used to fund, or reduce, any potential inheritance tax bill, protecting your loved ones and providing you with much-needed peace of mind.
Trust the experts
Navigating the rules and understanding the best way to plan ahead is notoriously difficult and can be fraught with complications. So why not let us do the hard work for you?
Our experienced financial advisors will carefully study your estate before identifying the most efficient way forward. Offering expert advice, guidance, and perhaps most importantly, the peace of mind that your future – and your family’s – is protected.
Let’s talk. Call us now on 0174 886077, email enquiries@rigbyfinacial.co.uk or fill in our contact form and a member of the team will be in touch.
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