Although we know that everyone has to die eventually, most people don’t like to think about it too much.
But when you realise that your death might result in the taxman taking thousands and thousands of pounds from your Estate then perhaps you may wish you had given it some thought to protect those you leave behind.
And it is not just the very wealthy who may have to face a large tax bill on death.
Don’t make the mistake of thinking that once you have passed away you have escaped the clutches of HMRC! If your Estate is worth more than £325,000 you could be affected. And as houses increase in value year-on-year it is quite possible that the value of your house alone could push your Estate over this threshold. Put simply, if you live alone in your own house worth £200,000, have £50,000 savings in the bank and a Life Insurance policy paying out £150,000 when you die then your Estate is worth £400,000. Anything above the £325,000 is then taxed at 40% which means the tax man takes £30,000 of “your” money leaving less than you thought to your family.
Will I have to pay Inheritance Tax?
Firstly you need to work out if you are likely to have to pay Inheritance Tax.
Do a quick calculation and add up any money you have in the bank, any ISA’s, premium bonds, investments, stocks and shares and don’t forget to include expected payouts from such as life insurance, pension or perhaps a “death in service” amount if you work in a relevant profession such as teaching. Add to this the value of your house (minus any mortgage) and any other property, land or business you own. And don’t forget the value of your jewellery, your car, motorbike or caravan! It can be a sobering thought… have you just realised you will be worth an awful lot of money once you die?
I’m married – does this help?
It can be easier to avoid Inheritance Tax if you are married or have a civil partner as it is possible to be “Joint Tenants” in your property which removes your house from the Estate valuation (this would be shown on the relevant Land Registry document). In a simple case where your spouse inherits everything then they will be exempt from the tax and when they die their £325,000 adds to your allocation meaning that on their death they can pass on assets totalling £650,000 before the tax is paid. This is known as the ‘spouse or civil partner exemption’.
However, if you are unmarried, live with a partner and jointly own a house it can become very messy! Don’t make the mistake of believing the term “common-law” is anything other than a description – it has no legal standing.
Can I give all my money away before I die?
Yes you can (over a period of time) but the difficulty, of course, is you must make sure you have enough money to live on and few of us ever know for definite when we are likely to die.
Money given away before your death will still be counted as part of your estate and therefore subject to inheritance tax if you die within seven years of giving the gift. Do remember that you are allowed to give £3,000 away each tax year inheritance tax-free and if you don’t use that allowance for one year, you can carry it forward for just one tax year (no more) and use it then.
You can also give gifts to charities and (interestingly!) political parties to avoid inheritance tax. And you can even give £250 each year to everyone you know without incurring a tax bill – so if you have hundreds of friends and relatives this may be useful!
What advice do you offer?
We would encourage everyone to take proper advice from both a Solicitor and Accountant who understands the relevant tax implications. You will need to spend some money to gain the correct advice but it may save you thousands of pounds. We can offer you sound advice in this area and are very happy to help.
We believe it's crucial to make a Will – not just for Inheritance Tax reasons but to make sure your wishes are carried out. It also helps to take pressure off those left behind who will already be grieving.
Off-the-shelf Will packages do exist but to avoid any doubt we would recommend you seek a solicitor’s help.
Before you panic, think about whether you are likely to be caught out by inheritance tax.
If all assets belonging to you and your spouse are under £650,000 you won’t pay the tax anyway, so there’s no need to worry – although our advice would still be to make a Will.
For those with bigger Estates, and particularly single people or unmarried couples then we can help you to avoid any nasty surprises. Why not give us a call to see if we can be of help?