Inheritance Tax (IHT) is a tax on the transfer of assets that you build up during your lifetime and then pass on to others when you die.
Each individual currently has a one-off IHT free allowance (called a nil rate band) of £325,000.00. If you are single, anything you leave over £325,000.00 will be taxed at 40%. If you are married, each of you has a £325,000.00 nil rate band giving a total IHT free allowance of £650,000 before your assets are taxed at 40% on death.
For some the value of their house can often take the majority if not all of their IHT free allowance meaning all their savings and investments are taxed at 40% on their death.
George Osborne in his last budget in office announced a new form of IHT relief for homeowners. It is incredibly complex and confusing. It is unclear whether this will survive the current governmental inheritance tax review.
Many consider IHT to be a voluntary tax as with careful and early planning it may be possible to pass on all your assets to your family tax-free. The calculation to assess whether IHT is potentially payable on your death can be done now and if necessary, planning can be put into place to protect your assets.
Even if you do not have an immediate IHT liability you need to have an idea what the liability could be in 15, 20 or 25 years’ time (depending on your age now). The reason for this is that your assets should grow in value over that time and any increase in the value of your assets may be in excess of your available nil rate band. This could mean a large part of your estate becomes liable to IHT.
Any planning done now would reflect your own lifetime needs to ensure you had adequate accessible assets for future living expenses and other events such as care fees safe in the knowledge that the remainder of your estate will pass IHT free on your death to your chosen beneficiaries.
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