Inheritance tax – it's a topic that's often met with apprehension and uncertainty. The idea of losing a significant portion of your estate to the taxman can be daunting, especially when it can cost your loved ones hundreds of thousands. In fact, more than £7 billion worth of inheritance tax was handed over to HMRC during the last tax year. But what if we told you that it's possible to legally avoid substantial portions of it, or in some cases, not pay any at all?
Understanding the intricate rules surrounding inheritance tax is essential, and in this guide, we'll walk you through everything you need to know about this financial landscape.
Inheritance tax is a levy on the 'estate' of a deceased individual. The amount you pay depends on the value of the deceased's estate, which is calculated based on their assets (including cash in the bank, investments, property or business, vehicles, and payouts from life insurance policies), minus any outstanding debts.
Crucially, you might not have to pay any tax if:
However, if neither of these situations applies, your estate will be taxed at a rate of 40% on the amount exceeding the £325,000threshold when you pass away (or 36% if you bequeath at least 10% of the value after any deductions to a charity in your will). It's worth noting that this£325,000 tax-free threshold can vary depending on your specific circumstances –in some cases, it can be as high as £500,000 or even £1 million. We'll delve into this further below.
The politics surrounding inheritance tax can be contentious. On one hand, it's seen as a way to prevent the perpetuation of inherited wealth, ensuring that the children of the affluent don't remain excessively rich. Inheritance tax reallocates income, with some funds going to the state for the greater good.
The opposing argument is that when money is earned, taxes are paid in due course, making it seem unfair to be taxed again upon inheritance.
After years of skyrocketing property prices, more individuals have found themselves crossing the inheritance tax threshold, making it a prominent concern. The numbers are expected to continue growing due to the inheritance tax threshold being frozen until April 2028.
Regardless of your political stance, inheritance tax isa financial reality, making it financially prudent to understand how it affects you and explore strategies to mitigate its impact.
If you're seeking expert guidance on navigating the complex landscape of inheritance tax and uncovering strategies to protect your estate, consider booking a call with Elena Meskhi today. She can provide valuable insights to help you make informed decisions about your financial future. Don't let the complexities of inheritance tax catch you off guard – be prepared and safeguard your legacy.
