An article in the Telegraph earlier this week points out that a number of people affected by Inheritance Tax (IHT) delay planning for it, which could prove to be a costly mistake.
As the IHT threshold is only £325,000 now, increasing to £329,000 in 2015/16, more and more people are affected by the tax and those who fail to plan could leave their loved ones with a hefty bill to pay before they can inherit.
The tax is currently levied at 40 per cent on anything over the threshold, but people could start to mitigate this amount now in a number of ways, such as giving a cash gift of £3,000 in any tax year, which will be exempt from IHT as long as the donor lives for seven years after the gift was given. In addition, the amount of tax goes down to 36 per cent if at least 10 per cent of the estate is left to a charity.
There are also different rules for spouses or registered civil partners. For example, any assets left to them are exempt from IHT as long as they live in the UK. In addition, an individual’s partner’s Inheritance Tax allowance is increased by the amount the individual did not leave to others, meaning that, together, a couple can currently leave £650,000 tax-free.
Also, gifts of no more than £250 to any one recipient per tax year are excluded from the tax and not counted towards the annual gift exemption, so gifts to friends and relatives of £250 each all ‘dilute the pot’ that can be taxed.
Marc Stemmer offers financial planning advice to businesses and individuals; helping them to achieve their financial goals.