The tax year 2014/15 came out with a new announcement for tax payers who will be inheriting financial assets from someone deceased. This rule is expected to stay till 2017/18.
Simply stated, an individual in the United Kingdom who inherits any kind of financial assets will be liable to pay an inheritance tax (IHT) above a threshold value of those assets.
This law was taken into account on the basis that if inherited money is completely passed on to heirs/partner, the rich will stay rich and little would be done economically for the society.
The government plans to use this tax better by distributing it in a rational way among everyone. Rising property prices might have made your family a victim to inheritance tax but there sure are some ways to avoid inheritance tax.
How much tax do you need to pay
As stated officially, any amount above 325,000 GBP will be subject to a hefty 40% as inheritance tax. So if you left that beautiful farmhouse to your children whose value of inheritance is 500,000 GBP, then prepare your family to pay 40% of (500,000-325,000) i.e. a whopping 70,000 pounds as the inheritance tax.
However, if you believe in giving for the society and make a charity (of atleast 10%), then you will be exempted partially but your inheritors still have to pay 36% as the tax
How can I avoid paying inheritance tax
As most of us are looking to minimize our income tax, so is the case with inheritance tax. A proper money saving (and spending) plan can minimize the amount of money your inheritors will have to forfeit when you are no more around. Here are some actionable steps
Married couples are more safe
If your spouse has a United Kingdom domicile and you have decided to leave behind all your money to your better half, then this amount is exempted from the inheritance tax. Sounds good? Wait, there’s more
As a couple, the allowed tax allowance is twofold for a couple. So you and you are spouse can together leave behind (325,000*2) i.e. 650,000 GBP as tax free. So all you married couples out there, take a sigh of relief. In case you aren’t married, keep reading
Give away your money the right way to dodge IHT
Giving away in the form of gifts which are considered tax-free is a healthy way to avoid inheritance tax. Here are some tax-free gifts that will help you
- Gift to your spouse or civil partners who are domiciled in United Kingdom. An amount upto 55,000 GBP is exempted
- Remember reading about charity above? Give atleast 10% of your assets to charity and you will have to pay only 36% as IHT
- Spend more and have luxury expenditure. Especially if you don’t leave it to your kids, make the most of that money and live a good life with those pounds
- Are your children getting married? Each parent can give upto 5000 GBP and each grandparent can give upto 2500 GBP which is exempted of inheritance tax
- Get a little more generous and gift your loved ones with presents upto 250 GBP (to different individuals).
- Give away your assets before 7 years of your death : I know that may sound a little illogical but you can still have a fair idea of your life length and if you give away before 7 years of your demise, there is no inheritance tax
Get professional help
Saving money the right way is often hard. If you feel the need, hire a tax consultant who can guide you much better on this topic