Inheritance Tax, Planning Ahead

Here’s a simple question for you: are you happy that the Taxman could be a major beneficiary of your estate when you die?

We doubt it. After a lifetime spent building up your wealth, mostly from income that has already been taxed, most people find it frustrating – some might say infuriating – that the taxman could still receive a substantial part of their estate on death?

It’s an issue that now affects a vast number of homeowners, not just the very wealthy or large landowners. Your estate is the total value of your property, money and possessions – and Inheritance Tax becomes payable if your estate’s total value when you die is more than the Inheritance Tax threshold set by the government at the time.

The current threshold at which the estate must pay 40% tax is just £325,000 for a single person or £650,000 between them, for people who are married, in a civil partnership or widowed. 

Keep in mind the average house prices in the 12 months to January 2024 decreased in England to £299,000 (negative 1.5%), decreased in Wales to £213,000 (negative 0.8%) and increased in Scotland to £190,000 (4.8%) and it’s easy to see why this is an issue that is being thought about by more and more families.

If you give your home away to your children in your will (including adopted, foster or stepchildren), or grandchildren, then your threshold is increased to £500,000. So with careful planning, you can make sure more of your assets go to those who you really want to benefit, and greatly reduce any future inheritance tax liability on your estate. (Normally there is no Inheritance Tax to pay if you leave everything to your spouse or civil partner, or to a charity or a community amateur sports club).

This is potentially going to be the largest tax bill you’ll ever receive. Let’s say, for example, you’re single and your estate is worth £425,000. Take away the single person’s threshold value of £325,000 and currently your estate is left with an inheritance tax liability of 40% tax on £100,000. That’s a tax bill of £40,000, which is paid to the taxman before the balance of your estate is dealt with under the terms of your will. In short, your preferred beneficiaries wait for what’s left to be declared by your executor(s), but HMRC has received its cut.

It doesn’t have to be like that. Tax planning is lawful and ethical to ensure your beneficiaries get the best deal they can. Perth Mortgage Centre can help you in this planning process, not least because HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. For example, if you are a partner in a professional practice, and you die while still working, then do you know whether the sum paid under any Shareholder/Partnership Protection policy is counted as part of your estate or not? (Not, as it happens, because it is paid directly from your business insurer to your business - the named beneficiary.) But this all needs to be identified, understood and planned for in your Will.

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INHERITANCE TAX PLANNING, TRUSTS AND TAXATION ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.

Will writing is not part of the Openwork offering and is offered in our own right. Openwork Limited accept no responsibility for this aspect of our business. Will writing is not regulated by the Financial Conduct Authority