Inheritance Tax and Estate Planning

Estate planning is the process of deciding what you would like to happen to your assets and the most tax efficient way of organising them, both whilst you are alive and after your death. An estate planning lawyer can provide advice on how to arrange your estate, taking into account your needs now and your wishes in the event of your death.  

What is an ‘estate’?

Your estate is made up of your property – such as your house, your possessions, and your money, which can include cash, pensions and other investments.

What is inheritance tax?

Inheritance tax is the tax which is paid on an estate after a person has died. Inheritance tax planning is a legal way of making sure your assets are arranged in the most tax efficient way on your death.

When does inheritance tax have to be paid?

The inheritance tax threshold is currently £325,000. That means there is normally no inheritance tax payable if the value of your estate is below the threshold of £325,000 or you leave everything above the threshold to a spouse, civil partner or charity. 

Who pays inheritance tax?

Inheritance tax is paid by the person who is dealing with the estate. If there is a will, this will be the named executors. Inheritance tax must be paid by the end of the sixth month after the deceased died. 

How can I reduce inheritance tax?

Inheritance tax planning can involve a number of complicated areas of law and we would always recommend seeking advice from an expert. Our estate planning lawyers can provide advice on a range of options that you might consider to reduce inheritance tax liability:

  • Potentially Exempt Transfers – these are gifts you make while you are alive and will be exempt from inheritance tax as long as you survive seven years after the gift was made.
  • Annual Gift Allowance – these are assets or cash up to a total value of £3000 in each tax year which can be made without incurring inheritance tax.
  • Charitable Gifts – gifts to charity are exempt from inheritance tax. Additionally, if you pass 10% or more of your estate to charity, you can reduce inheritance tax due on the rest of your estate from 40% to 36%.
  • Discretionary Trust – money transferred into a Discretionary Trust is exempt from inheritance tax, up to the current allowance of £325,000, although there are some other tax implications from this course of action.

Contact us to speak to an estate planning lawyer from our private client team.

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