Do you want your beneficiaries to share your estate with the tax man?

The Inheritance Tax threshold has been frozen at £325,000 until at least 2027. Property prices recently reached record levels. You might be excused from thinking that HMRC might just get their hands on a share of your estate after your death.

If your estate is worth more than £325,000, it will be subject to a charge of 40% on any balance over that figure. That means, if your estate is worth, say, £400,000, it would attract an Inheritance Tax charge of £30,000 (40% of £75,000).

However, with some forward planning, it is possible to mitigate the impact of Inheritance Tax on your estate.

Can I leave my entire estate to my spouse without any tax being paid?

There is no Inheritance Tax charge for any estate transferred to your spouse or civil partner. However, you need to consider whether you are simply stoking up a problem for your surviving spouse or civil partner for the future.

If you do not use up your exemption, your spouse or civil partner can make use of any unused parts of your exemption.

Is there any additional allowance relating to my main residence?

If you decide to leave your main residence to your children or grandchildren, you are entitled to an additional allowance of £175,000. Should you decide to leave your main residence to your children, it would increase the overall allowance to £500,000.

What happens if you give away some or all your wealth?

If you make gifts of all or part of your assets, property, and investments, you might avoid an Inheritance Tax charge. However, if you gift an asset, property or investment but still enjoy the benefit of it, it will be considered a gift with reservation. So, if you gift your house to your child but continue to live in it without paying a market rent, it will continue to be included as part of your estate.

If you totally divest yourself of your property, assets or investments and survive for seven years after the divestment, the value of these will no longer form part of your estate.

What about other gifts?

You can gift up to £3,000 every year and make as many gifts of £250 each year as you wish.
You can gift £5,000 to a child for their wedding, £2,500 to a grandchild and £1,000 to anyone else.

Gifts to charity

If you make a bequest to a charity, the value of that bequest will be deducted from the value of your estate. If you donate 10% or more of your estate to charity, the percentage of Inheritance Tax charged will be reduced from 40% to 36%.

What are the options?

First of all, make a Will. You should speak to your solicitor and financial adviser about estate planning options. By planning ahead, you will be able to take steps to mitigate the impact of Inheritance Tax and avoid or reduce the amount your beneficiaries will share with the tax man!