Nobody likes to think about death or paying taxes but prudent Tax Planning can save your successors money and prevent a slice of your estate from making its way into Government coffers. Tax Laws change periodically. Currently, no Inheritance Tax is payable on each estate with a net value of £325,000.00 or less. This is known as the ‘Nil Rate Band’. This may sound like a lot of money but if you consider the assets of both you and your spouse plus the value of your property, Inheritance Tax may be a serious issue. If your estate is worth over £325,000.00, your estate will have to pay 40% tax on anything over that amount unless exemptions apply. Exemptions include:
Everything bequeathed to your spouse or civil partner is free from Inheritance Tax.
Transferable Nil Rate Band
On the 9th October 2007, the government introduced the ‘Transferable Nil Rate Band’. It effectively simplifies an inheritance tax problem by allowing spouses and civil partners to bequeath their estate, or residue of their estate to their spouse or civil partner along with any unused Nil Rate Band to be transferred as well. For example, if your spouse bequeaths £81,250.00 in gifts (i.e. 25% of their allowance) and the residue to you, you will have your own Nil Rate Band plus the remaining 75% of your spouse’s Nil Rate Band (i.e. £243750 plus £325,000 = £568,750). This could amount to quite a large bequest being free from Inheritance Tax should you outlive your spouse since the Survivor’s estate will benefit from its nil rate band plus the unused nil rate band of the deceased partner.
Gifts to UK charities are not liable for Inheritance Tax. Some people choose to leave a portion of their estate to a charity in order to reduce the tax payable.
Every person in the UK has an annual allowance of £3,000.00 free of inheritance Tax. This means that you can give away assets in any form e.g. cash or a specific item up to the value of £3,000.00 without being liable to Inheritance Tax if you die within 7 years of this gift (if you live within 7 years from a gift being made it can be exempt despite being larger than £3000). We can advise you on this difficult area.
Capital Gains Tax
The base value of your assets for Capital Gains Tax is uplifted on your death to the then current value.
Your residuary estate is the value of your assets after any liabilities are paid and any gifts have been distributed. When administering the Will, liabilities may include debts, mortgages, inheritance tax, funeral expenses and any other expenses incurred during the distribution of your estate. If there is property involved, there may be expenses incurred in selling the property, including paying bills up until the property is sold and Solicitor’s and Estate Agent’s fees in dealing with the sale.
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