Here’s what you should be doing NOW about inheritance tax
There is a false assumption that it is something to worry about when you are 'old'. But what does 'old' mean? We are quick to complain about a 1% increase on income tax but surprisingly don't seem bothered about the fact that the tax man could take up to 40% of our estate when we die. That is money that could be passed on to your family or organisations you would like to support.
HMRC collect over £3billion in inheritance tax a year yet it is largely avoidable with some very simple bits of planning that anyone can do. Everyone should be aware of their potential inheritance liability, in the event of their death, but especially those aged over 55 because they have more flexibility when it comes to avoiding inheritance tax.
So how do you calculate how much inheritance tax you could end up paying? How could you personally reduce your potential IHT bill? Or what are the best ways to avoid paying inheritance tax? Below I show you how to work out the answers to these questions in minutes and what you need to be doing today about inheritance tax.
Step 1 - Answer these quick questions
Get a pen and paper and jot down the answers to these questions (or make a mental note):
- Are you married?
- Everyone is entitled to a nil rate band (currently £325,000) which is the value of the assets that can be passed on without inheritance tax being applied. Have you inherited someone else's nil rate band as well (i.e this will occur if you have a deceased spouse)?
- How much is your house worth?
- How much are your other assets worth, including investments?
- Do you plan to give a significant sum of money away to charity when you die? If so how much?
- What would be the total outstanding value of your mortgage and debts if you were to die today (once you've taken off any associated life insurance that would pay out)? If you have life insurance in place to clear your mortgage when you die then ignore this question
- Details of gifts (cash and assets) that you've made within in the last 7 years.
Step 2 - The quick way to work out your inheritance tax (IHT) bill
Here is a our FREE inheritance tax calculator which can be quickly used to work out what your potential inheritance tax bill will by using the information from step 1 above.
Open the calculator and then follow the simple instructions below which will take just minutes. You can do it for yourself or for you and your spouse:
1st section (Assets - Property)
- enter the current value of your home
- enter the current value of any other property
2nd section (Assets - Personal Possessions)
- enter the value of any personal possessions
- enter the amount held in any current and savings accounts
3rd section (Investments and assurance)
- enter the value of any investments, other assets and life assurance policies
4th section (Gifts)
- enter the value of any gifts you have given in the last 7 years
5th Section (Liabilities)
- enter your outstanding mortgage, loans and other liabilities
Step 3 - Now cut your inheritance tax bill
This is the most important part of the entire exercise. By completing steps 1 and 2 you now have a handle on your potential tax liability. Now it is all about maximising the amount of money you can pass on. Or in other words how to avoid paying inheritance tax legally and fairly.
So I suggest that you download this excellent FREE guide to IHT including the steps to cut your IHT bill. This is by far the best guide I've seen on inheritance tax advice and downloaded.
Once you've downloaded it skip to page 8 to see a full list of the exemptions you can claim to reduce your IHT bill. When you've read through them have a look at page 12 which outlines the simple ways trusts can be used to eliminate inheritance tax whilst page 4 details how you can pass on your home free of IHT.
This entire exercise should have taken you no more than a few minutes to complete and should put the wheels in motion to saving thousands of pounds in inheritance tax and passing on more of your estate to your next of kin.
(Photo by Stuart Miles -freedigitalphotos.net)
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