Published On: Tue, Dec 5th, 2017

4 Ways to Deal with Inheritance Tax Issues

According to the UK government’s inheritance tax statistics, inheritance tax receipts increased 4% from 2015-16 to reach around £4.9 billion in 2016-17. However, this growth was substantially lower than the growth observed from 2014-15 to 2015-16, which was 22%, due to the increase in the number of deaths that year.

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But, what is inheritance tax? When a person dies, his money and property are distributed to the beneficiaries, either through a will, after applying for grant of probate, or letters of administration if there was no will. Prior to the application for a grant in the estate the executors and trustees will need to settle the inheritance tax. The number of estates that are being caught by this tax is growing tremendously, say probate lawyers at SCL Wills & Probate in London.

At present, inheritance tax is set at 40%, calculated above a set threshold of £325,000. For those who have given more than 10% the estate to charity, the inheritance tax is reduced to 36%.

No one creating a will never desires their beneficiaries, who are in most situations are their spouse and/or children, to end up paying a large sum of money as inheritance tax. For this purpose, they can take certain measures to help cut down on this tax.

4 Ways You Can Minimize Inheritance Tax

  • Place a Part of Your Asset in a Trust: Setting up a trust, where you put some of the property, cash and investments, for your adult children, to support a family member with a disability and to pay for your children’s education, protects that part of the estate from inheritance tax. Either you can establish a trust while you are alive or mention in your will that one should be established after your demise. However, you should know that certain trusts have their own set of taxes and the trust itself needs to pay inheritance tax, where trustees are equally liable.
  • Gift to Friends and Family Members: If the beneficiaries are not your spouse or civil partner, you can give something from your assets to a loved one while you are alive, as a gift. The idea is not to get any benefit from that asset once you have gifted it. However, the value of the gift will still be included in the inheritance tax liabilities for seven years from the time it has been given.
  • Gift to Your Spouse: If your spouse or civil partner is not deemed UK domicile for inheritance tax purposes, then as mentioned above, any gift that is made to them will fall out of the estate of the person making the gift if he/she survives sevens years from the day that the gift was made. This will help in cutting down the inheritance tax payable.
  • Give to Charity: Giving something from your assets to charity is not only a noble deed but a great way to reduce inheritance tax, since this tax is calculated at 36% rather than 40% when you leave at least 10% of your estate to charity.

For further guidance, seek professional advice for the reputed probate solicitors in London.

Author: Dharmendra

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