Category : Money

Planning For Inheritance Tax

Inheritance tax can be a significant burden on your loved ones after you die.

Fortunately, there are steps you can take to minimise the effect that inheritance tax has on the beneficiaries named in your will.

This guide will explain how inheritance works and the techniques that can be used to avoid it.

What is inheritance tax?

Inheritance tax is a tax levied by the UK government on your estate once you have passed away.

It is applied on all of the assets you own including:

  • Cash in the bank
  • Property
  • Businesses you own
  • Vehicles
  • Investments
  • Insurance payouts

The government will tally the value of your assets then deduct any outstanding debts and tax allowances before calculating the tax that is owed.

If your estate is worth less than £325,000, you will not have to pay inheritance tax.

If you leave everything to your spouse or civil partner, a community amateur sports club, or a charity you also won’t have to pay inheritance tax.

However, you will still have to report the details to HM Revenue and Customs (HMRC).

Estates must pay 40% tax on anything above the £325,000 threshold.

However, the inheritance tax rate is reduced to 36% if you donate 10% or more to charity.

Changes to inheritance tax on the main residence

In 2015, Former Chancellor of the Exchequer George Osborne announced that the way inheritance tax was calculated on a family’s “main residence” would be changing.

This change increases the tax free threshold on homes that are passed from parents or grandparents to a direct descendent (children, step-children, or grandchildren).

The new thresholds are gradually being phased in and will eventually reach £1 million (£500,000 for singles) in 2020.

The changes only applies to a single home that is declared a main residence.

Currently (2017/2018), the main residence threshold sits at £125,000.

This is added to the normal £325,000 threshold, giving a total of £450,000.

It will increase by £25,000 until the total threshold reaches £500,000 (£1 million for couples).

This means that the current maximum amount that can be passed on tax-free is £900,000 for a couple (married or in a civil partnership), or £450,000 for a single person.

For properties worth between £1 million and £2 million, inheritance tax will be charged at the normal rate above the tax free threshold (40%).

Highly-valuable properties will begin to lose the main residence discount.

For every £2 of value above £2 million, £1 of the main residence discount is lost.

That means a property worth £2.35 million will not receive any benefit from the main residence discount.

How can you plan for inheritance tax

Fortunately, there are a number of tactics that you can employ to reduce the total amount of inheritance tax levied against your estate.

These simple actions can save your estate hundreds of thousands of pounds — ensuring that your beneficiaries gain as much as possible.

Give money to beneficiaries before you die

Any assets gifted to a friend or family member at least seven years before your death will not be included in your estate and won’t be affected by inheritance tax.

For example, if you gift your children £10,000 and live for a further ten years, it won’t be included in your estate and won’t be taxed.

However, there are some limits for how much you can give away.

Only £3,000 can be gifted each year, along with monetary gifts for children and grandchildren when they get married.

Larger gifts will attract inheritance tax.

Read more about gifts and exemptions from inheritance tax.

Gift assets to your partner

If you are in a civil relationship or married, you can gift some of your assets to your partner, making them unaffected by inheritance tax.

There are some limitations to this method and specific rules that apply if your spouse or civil partner’s permanent home is located outside the UK.

It is also possible for a person to pass your tax-free allowance to your spouse.

That means if you don’t use the entire £450,000 tax free threshold, the unused component can be added to your partner’s threshold.

Purchase life insurance

Although life insurance will be counted as a part of your estate and will be taxable, the additional funds it provides can still be quite useful for your family.

Your family can use the insurance payout provides to pay bills — including the inheritance tax bill.

Placing the funds from your life insurance payout into a trust is a useful technique that minimises the tax paid and helps your family deal with any significant bills.

Donate money to charity

Any assets that you donate to charity are free of inheritance tax.

If you leave at least 10% of your estate to charity, you will also reduce the inheritance tax rate on the balance to 36%.

This technique allows you to give more to your beneficiaries while also helping the community.

Thanks for reading Planning For Inheritance Tax.

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Why There Are So Many Unhappy Millionaires

We’ve all heard the phrase “money doesn’t buy happiness” but a surprising number of people seem to think it does.

Most people will have lost count of how many times they’ve thought that winning the lottery would solve all of their problems or how buying the latest sports car would enormously improve their mood for years to come.

However, that isn’t always the case. In fact, a lot of millionaires are actually a lot unhappier than those who earn an average wage and have an average amount of savings.

How can someone with money struggle to find happiness?

Why is it that, despite having seemingly endless amounts of money, a lot of millionaires struggle to find happiness in their everyday lives?

There are a lot of different answers to the question and of course each individual will have their own personal reasons for feeling unhappy despite their wealth, though there are some common examples that are seen often.

Being a millionaire often involves a lot of hard work, whether that be running a hugely successful company, working long hours or investing in businesses.

This hard work is time consuming and therefore many people don’t have the free time to appreciate their wealth or the things it allows them to do.

For example, someone who makes millions each year but struggles to find the time to go on lavish holidays, take up expensive hobbies or travel is likely to become disgruntled.

Simply, an unhappy millionaire is one that doesn’t get to enjoy the fact that they are a millionaire.

Another common reason for unhappiness among millionaires is related to the way they are viewed by others.

It can be argued that making new friends and forming relationships when you have a lot of money can be more difficult than those who have less.

Of course, there are likely to be a lot of people wanting to spend time with a millionaire but how do they know if that’s because they are interested in them or their money?

Being wealthy is bound to bring with it the question of whether a relationship is based upon money or a genuine connection.

Most people would assume that being a millionaire is a relatively stress-free existence, after all without money worries what is there to stress about?

However, many millionaires actually find themselves to be a lot more stressed out on a day to day basis than the average person.

This is due to them having more assets to take care of and bigger finances to keep track of.

To someone who isn’t a millionaire it may be difficult to understand the discontent that can come with having a lot of money but as the above examples show, being an unhappy millionaire is far from uncommon.