When it comes to thinking about the future and the assets you want to leave your family when you die, one of the issues that often crops up is inheritance tax and how best to plan for it.
Who does inheritance tax apply to?
Inheritance tax applies to any estate worth over £325,000.
If your estate is worth above this amount, you will be required to pay 40% for anything above the £325,000 threshold.
Who is exempt from paying inheritance tax?
Thankfully, there are some exemptions when it comes to inheritance tax.
Anything you leave to your spouse or civil partner will be inheritance tax-free, as long as your spouse lives in the UK.
Also, if you work in a potentially dangerous role, such as a firefighter, police, paramedic or armed forces personnel, and die in active service, you may be exempt from paying inheritance tax.
How can you limit the amount of inheritance tax you need to pay?
The best way to limit the amount of inheritance tax required once you pass away is by writing a will.
If you fail to leave a will, you will have no input in who gets what from your estate and how much tax is payable, therefore leaving your family in a difficult position.
Giving a gift is probably the best way to try and reduce your inheritance tax bill.
Money given as a gift before you die is still counted as part of your estate and therefore subject to inheritance tax, apart from if you live for over seven years after giving it.
In this instance, you will not have to pay the inheritance tax on it.
This is why it can be extremely beneficial to plan ahead when it comes to inheritance tax.
Another way to potentially limit the amount of unwanted inheritance tax you may need to pay is by insuring against it.
However, the downside to this is that often taking out insurance of this kind can be particularly expensive.
If you take out a policy that will pay enough to cover your inheritance tax bill, it will be paid out free of inheritance tax and before probate is granted.
This is because it is written under trust.