The Only Two Certainties in Life.
Death and Tax are often described as the only two certainties in life. As gloomy as it may sound an inheritance (IHT), means they can turn up at the same time.
There are plenty of ways to reduce or remove IHT altogether, and the sooner you act, the better placed you are.
The first step is work out whether you will be affected by IHT, in other words how much will I pay.
This is a basic summary of how IHT works;
First, work out the value of the assets that you own, but do not include your pensions.
Subtract the current IHT threshold, under the normal circumstances IHT is paid at 40% on the value of your estate (your property, money and possessions over £325,000, (the normal nil rate band).
There is also an additional allowance if you pass on your family home to direct descendants. It is currently set at £175,000, for any joint assets just reduce the value of your share.
If you have been widowed in recent years, you maybe able to gain a transfer of the other person’s nil rate band.
You are also able to make certain deductions from the overall value of your assets, including some investments in small companies (for example those listed on the Alternative Investment Market, or AIM) and any debts which have not been already paid may be deducted.
Before you start reducing your potential IHT bill, you need to have some basics in place:
Don’t prioritise saving IHT over your security. For now think of your own needs, you need to strike a balance between making sure you have enough to live on, and paying enough tax.
Things to consider:
- What you will need for your lifetime.
- What your partner will need if you die before them.
- Inflation – rising prices will eat away at the value of your savings.
- The possibility and costs of long term care.
- Write your will.
Your will is the foundation of your IHT plan, and legally binding. Writing a will means choosing who will benefit when the time comes, aswell as how and when. - If you don’t write a valid will, your estate will be subject to intestacy laws, which will determine who benefits. This could be different your wishes.
- Prepare a Power of Attorney and Select your Attorney.
You might become unable to manage your own affairs later in life, and making a Registered Lasting Power of Attorney (LPA), to carry out your wishes during your lifetime can help. This must be in place before you loose you ability to make your own decisions. - There are two types; one covers financial matters, and the other health and welfare decisions. Competing an LPA doesn’t mean someone can immediately control your life, they must act with your best interests in mind. They can help you pay bills or organise care. An LPA can only come into play at the point of need if you specify this.The benefit is you can choose who can act for you if the time comes. If you don’t appoint an attorney, your relatives will have to apply to the Court of Protection if you loose the ability to make your own decisions. This can be slow and an extremely expensive process. You wouldn’t be able to select your own attorney in this instance, or specify how you like your affairs to be managed, as this is subject to the Courts discretion.
If you require help in connection with any of these matters, please do not hesitate to contact us.