Are you prepared for inheritance tax?

While you might have made long-term financial plans that even factor in retirement, are you prepared for inheritance tax? In the following passages, we’ll take a look at four important points everyone should understand about inheritance tax,

Inheritance tax is not only for the super-wealthy

For the tax year running from 2020 to 2021, inheritance tax receipts were calculated at £5.3 billion, showing an increase on the previous year. Rising house prices have been a strong contributing factor to this steady rise. Against forecasts, the prices of homes have soared since the pandemic, adding to the value of the estates people are leaving behind.

The law states that a person who dies with assets above £325,000 will need to pay inheritance tax, and for many, the increased value of property may push them beyond the threshold.

Understanding exemptions

Despite this, a number of planning opportunities are available. Every person in the UK has a ‘nil rate band’ set at £325,000, which means they pay tax on anything beyond this figure. However, for estates that aren’t worth above £2m, an extra allowance of £175,000 is available for property passed on to family members. Additionally, estates can be passed on inheritance tax-free to a civil partner or spouse.

Gifting can also be used to pass on your assets and to receive an exemption. Gifts are inheritance tax-free after seven years, regardless of their value. It’s also possible to give away up to £3,000 every tax year and make what is referred to as ‘regular gifts out of income’.

Pensions and trusts can be allies

Pensions are not included in your estate regarding inheritance tax. This makes pension pots exceptionally tax efficient. For example, if a beneficiary inherits your pension savings when you die before age 75, they can withdraw money from it without needing to pay income tax. If you’re 75 or older when you die, your beneficiary will only pay income tax on a marginal rate, which may be between 20 to 45 per cent, depending on their personal income.

Trusts can also help people to shelter some of their wealth. By placing in trust a dedicated life assurance policy, you can ensure funds reach beneficiaries fast, without becoming part of your estate.

Never leave yourself short

Among the biggest mistakes people make is to pass on their wealth too soon without thinking of their future needs. While it’s understandable to want to pass on more of your wealth to your beneficiaries than HMRC, always ensure your own needs will be covered, even unexpected ones, like medical bills and fees for long-term care.

Inheritance tax specialists

Are you prepared for inheritance tax? If you’re looking for assistance with mitigating your tax bill and help with wealth management in Shropshire, you can rely on our expert team. At Hartey Wealth Management, we provide specialist strategies for our clients that allow them to reduce the tax they pay, enabling them to care for those they leave behind. Contact us today and start preparing for the future.


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