Inheritance tax is unfortunately a fact of life but the good news is you can take steps to minimise the amount your loved ones have to pay after you die.
Inheritance tax (IHT) and Wills go hand in hand and you should use your Will to keep the amount of IHT owed on your estate to the smallest possible sum – as well as to look after loved ones when you’re no longer around.
Inheritance Tax Facts
According to the Office for Budget Responsibility (OBR), approximately 6.5% of estates will face the 40% IHT rate by 2026 – which is a lot more than the 3.7% of estates facing the higher rate in 2020.
So, what is causing this sharp increase in estates facing the higher IHT rate?
According to the OBR, it’s a combination of:
- Huge rises in property prices
- Extra deaths caused by the Covid-19 pandemic
The IHT threshold has remained at £325,000 since 2009. This means that no tax is paid on estates worth less than this amount. There is an extra £175,000 allowance for the family home provided it passes to direct descendants, and this will stay frozen until 2026.
The good news for married couples and civil partners is that any IHT allowance unused can be passed onto a spouse or civil partner, meaning they can effectively leave an estate worth £1million in total without their family having to pay any inheritance tax.
What Are The Implications Of More Estates Facing 40% IHT Rate?
It is likely that more and more people will want to minimise or avoid IHT being payable by sharing their wealth during their lifetime rather than leaving it to loved ones in their Wills.
Lifetime giving can be challenging, though, and you should be wary of:
- Undue influence
This is when someone is pressured into making a big gift of money or property, when perhaps they don’t want to. This so-called undue influence can be hard to identify and establish either during the lifetime of the victim or after their death, but it’s not impossible. Even when someone appears willing to transfer across their property, they can still be found to have done so under undue influence.
With wealthy elderly relatives, you need to be watchful of greedy family members but also stranger predators. There are individuals who will try to groom vulnerable elderly victims into marriage – it’s scary how few safeguards are actually in place to prevent a marriage involving an elderly person lacking mental capacity. As marriage cancels an existing Will, a victim’s ‘spouse’ inherits the estate, and benefits from the IHT spouse allowance too.
- Gift with reservation of benefits
These are gift where the ownership of an asset is transferred to someone else but the person making the gift retains the benefit of the asset. For example, gifting your own to your children but you remain living in the property. HMRC will treat that asset as still belonging to you and its value will be taken into account for IHT purposes.
What Can You Do To Keep Safe?
If you have your doubts about someone – either someone who you think may be pressuring a family member or putting too much pressure on yourself – seek legal advice as soon as possible. You may be able to put safeguards in place and take steps to ensure your wishes and those of a loved one are respected.
How We Can Help You
Our specialist Wills and probate solicitors are here to help and advise you on every aspect of inheritance, including IHT and Wills disputes and what to do if you suspect someone is trying to take advantage of a family member or influence your decision making.
We will listen to you to ensure we fully understand your circumstances before providing tailored advice and support to help you make the right decisions for you and your loved ones.