Need to know the differences between Joint Wills, Mutual Wills and Mirror Wills? In this article our Wills, Trusts + Probate team explain more…
One in ten estates will pay inheritance tax by 2018
According to research by the Institute of Fiscal Studies, the percentage of estates liable for inheritance tax will quadruple, rising from 2.6% in 2009-10 to 10% in 2018-19.
The introduction of the transferable nil-rate band, coupled with a temporary halt to the housing price boom, meant that the Treasury saw a sharp decrease in inheritance tax receipts in 2007.
However house prices are now rising at their fastest rate in years and this is coupled with an eight year freeze in the inheritance tax band threshold, currently £325,000. This freeze represents a cut in value of 22%, or £70,700 after inflation, and ultimately means that an increasing amount of families’ wealth is being taken by the taxman.
So what’s the result of this? Unless tax is reformed, Treasury receipts for inheritance tax are expected to increase to £5.8bn in 2018-19 and inheritance tax will claim a bigger share of the national income than at any time in the last 45 years.
So what can I do to avoid this?
As specialist Will writers, we recognise how important inheritance tax planning has become to our clients. Legislation around IHT has been tightened, but there are steps you can take to plan, mitigate or even avoid future liabilities to inheritance tax.
Your first step is to make sure you have an up-to-date, efficient Will in place. This is because dying intestate – that’s dying without a valid Will – very often triggers avoidable inheritance tax.
If you’re a couple, you can allocate one spouse’s unused tax-free allowance to the surviving spouse on the first person’s death. At today’s threshold, this permits each couple to leave up to £650,000, tax-free.
You can also make financial gifts, up to £3,000 per person to be gifted out with no tax consequences, and we can advise you on lifetime gifts, annual gifts and gifts to charity. However if you make financial gifts above this limit and die within seven years, these gifts can be taxed if you’re above the inheritance tax threshold.
You can also use trusts to pass assets to others, such as your children, and invest in regulated financial and pension products.
Tax and estate planning is often a key driver for many clients who are making or updating their Will.
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