At this time of year, top of the to do list for many is to make or review their Will.
You might think there’s no rush and you’d rather leave this until later in life, but it is essential to put things in place once you have a child or own a property, or you risk dying intestate and having your estate divided up against your wishes.
What happens if I die intestate?
In the absence of a Will there are statutory rules which dictate how your assets are distributed on death. Those statutory intestacy rules may not be tax efficient and you might want to make specific provision in your Will for your unmarried partner or for the guardianship of your children.
You may even want to leave a charitable gift to a cause close to your heart—this won’t be accounted for unless you have a Will in place.
The only way to ensure your estate is divided in a tax-efficient manner between your chosen beneficiaries, and that there are provisions in place for the inheritance tax attracted by your estate, is to undertake careful IHT planning with a professional tax advisor and write a clear and binding Will.
Use the government’s intestate calculator to find out who will inherit if you die without a Will.
How can I save money on the IHT bill?
There is normally nothing to pay on an estate of £325,000 or less, or if you choose to leave everything above this threshold to your spouse, civil partner, a charity or community amateur sports club.
If you decide to leave your property to your children (including adopted, foster and step-children) or grandchildren, your threshold can increase to £500,000.
If you’re married or in a civil partnership, they can inherit your remaining threshold upon your death, making their IHT threshold as much as £1 million.
The standard rate of inheritance tax is 40%. The estate can pay IHT at a reduced rate of 36% on some assets if you choose to leave 10% of the ‘net value’ to charity.
What if I gift cash and items to my loved ones before I die?
If you die within seven years of having given a ‘lifetime gift’, this may attract inheritance tax upon your death. ‘Taper relief’ means that the amount of tax due reduces depending on how long ago the gift was given, so it’s worth factoring this type of gift into your financial plans.
With a little clever IHT planning, you could minimise your tax bill and leave more of your money and possessions to your loved ones and other chosen beneficiaries. Get in touch if you’d like us to review your Will and help you to make your bequests are tax-efficient.