Inheritance Tax Planning Edinburgh
Our Inheritance tax planing service can help save your loved ones hundreds of thousands of pounds.
Rises in the value of people’s houses have increased the number of people eligible to pay inheritance tax. The law is the law, but the good news is that with some careful planning, it is possible to minimise the amount of inheritance tax that you’ll have to pay in a perfectly legal way.
What is inheritance tax?
A tax paid on ‘your estate’ (ie. everything of value that you own) in the event of your death. Until the 2017/18 tax year, the first £325,000 of your estate is tax-free. Everything above this is taxed at 40 percent, or a reduced rate of 36 percent if you leave at least 10 percent of your estate to charity.
How can I minimise my inheritance tax liabilities?
The effect of rising house prices on inheritance tax liability has been tackled. In 2015, the government announced changes that will come into effect from 2017. A new tax-free band for the ‘main residence’ of the deceased will be phased in gradually until 2020. This will mean that, where the recipient of the main residence is a direct descendant of the deceased, a house can be passed on worth up to £850,000 without being eligible for income tax.
Use excess income for gifts
Gifts meeting certain criteria are exempt from inheritance tax. There is a £3,000 annual gift allowance which is exempt from inheritance tax. Gifts above this limit will no longer be eligible for inheritance tax provided that the person making the gift lives for another seven years. Should you die before seven years, the inheritance tax due is reduced by a tapering scale.
For example, should you die three or four years after the gift, then the tax due will be reduced by 20 percent, with reductions of 40 percent for a gift four to five years old, and so on in increments of 20 percent until the eighth year, where 100 percent exemption is reached, and no tax is payable.
Excess income can be given away as a gift and not be included in the £3,000 yearly allowance if the gift is part of normal expenditure and doesn’t reduce your standard of living. The case for this will be argued by the executor of your estate upon your passing, so it’s important to make a will and keep detailed records of your gifts.
Put your assets into a trust
In the eyes of the law, any investments, property or capital put by you into a trust is no longer part of your estate for tax purposes, provided that neither you, your partner, nor any of your children under the age of 18 can benefit from it. Trusts can be set up at any time, but you may be liable for capital gains tax if you transfer assets into a trust while still alive. This can be avoided by establishing a trust in your will.
Naturally, it is important to consult a financial expert before following this option, as trusts have their own rules and regulations, and in certain cases are liable for inheritance tax or income tax themselves. If you would like further information on this or any of the topics covered above, don’t hesitate to contact Allsquare today 0131 343 1510.
