If you plan to pass on your wealth or possessions after you die, your heirs could be in line for a hefty tax bill. Subject to certain exemptions, inheritance tax is charged at the rate of 40% on the value of your estate above £325,000. Here Ken Smith, Partner at Rollos Solicitors examines how having a will and planning for your and your family’s future can help reduce or avoid your inheritance tax liabilities.
Understanding inheritance tax
According to the HMRC, only 4-5% of estates in the UK pay inheritance tax.
The first thing to note is that married couples and civil partners are allowed to pass their possessions and assets to each other free of inheritance tax, irrespective of value.
Everyone benefits from a tax-free allowance of £325,000 or £650,000 per married couple on an estate. It means you can leave that amount to a loved one without incurring a charge to tax. Furthermore, if you leave your home to your children or grandchildren, you will be entitled to an additional allowance.
If your estate exceeds that figure, you are very likely to be taxed at 40% on the excess.
Leaving a charitable legacy
A great way to support causes close to your heart is by leaving a gift to charity in your will.
Any amounts you leave to a registered charity are tax-free which could be used to bring your estate under the inheritance tax threshold.
This means after you have provided for your loved one, giving a little can result in better financial gains for your other beneficiaries.
If you leave 10% of your taxable estate to charity, the tax rate on the remainder will decrease from 40% to 36%.
Even leaving just a small amount to charity in your will can make a big difference: leaving a legacy to one of the Will Aid partner charities will help some of the most vulnerable people in the UK and worldwide.
Give away gifts
Some people try to give away wealth before they die to avoid paying inheritance tax.
Giving money away during your lifetime can reduce the bill and leave more money for your heirs.
You can give unlimited gifts of up to £250 per person in any tax year but when it comes to giving away more considerable amounts, you can only give away up to £3,000 per annum tax-free.
Above this amount, any gifts you make within seven years of your death could incur a charge to inheritance tax. After seven years, such gifts fall out of the reckoning.
How to make a will via Will Aid
Making a will with Will Aid is easy. Will Aid is a partnership between the legal profession and some of the UK’s best-loved charities.
Every November, participating solicitors waive their fee for writing a basic will in return for a voluntary donation of £100 for a single will and £180 for a pair of mirror wills.
Donating our time towards Will Aid is important to us as a firm as we pride ourselves on giving back to worthwhile charities. Will Aid is a great way of generating a link with new clients and supporting nine of the UK’s best- loved charities.
To find a solicitor in your area visit https://www.willaid.org.uk/will-makers/find-a-solicitor or call 0300 0309 558 for more information.