Inheritance Tax Planning & Trust Planning
It is important to plan for the future and think about what will happen to your estate when you pass away. Estate planning is important for everyone and whilst everyone’s circumstances are unique, we all aim to protect the assets we have worked hard to create.
Inheritance Tax is the tax on the value of your estate when you die and includes all your assets including your home, cash, investments, and other belongings such as cars, furniture, and heirlooms. Before the beneficiaries of your estate can receive any money, this tax needs to be paid.
As house prices have increased beyond expectations, the majority of homes in this area now have a value in excess of the threshold for inheritance tax, meaning most house owners will be liable to pay it.
By planning ahead, you can mitigate your Inheritance Tax bill and ensure you have money to live comfortably.
Call to book a consultation now on 0203 840 5011.
Inheritance Tax allowances
Inheritance Tax is payable once your estate exceeds the threshold, which will be fixed to £325,000 until 2026. Anything in excess of this figure (known as the nil-rate threshold) is taxed to 40 per cent. There are various ways this bill can be reduced or managed.
There is also the additional ‘main residence’ allowance, known as the Residential Nil Rate Band (RNRB), which applies if a person’s home is given to their children or grandchildren. This is set at £175,000 and is added to the IHT allowance, giving a total allowance of £500,000. If a relative passes away and the estate is worth more than £325,000 per individual or £500,000 (if the main residence allowance applies), families are required to pay the amount in excess of the NRB within six months.
What are the different types of trust?
Trusts come in different forms and there are variations on the rules, depending on what type of trust it is.
These are the main types:
- Bare Trusts: These trusts, which are sometimes called simple or absolute trusts, hold assets on behalf of another person, until they choose to take ownership of them.
- Discretionary Gift Trusts: This is the most popular type of trust and means that you put assets into a trust and specify how you would like them to be used.
- Mixed Trust: This type of trust incorporates characteristics of several types of trusts.
- Trust for a vulnerable person: Also known as a trust for disabled beneficiaries, this is a type of trust for someone who is otherwise unable to look after the trust for him or herself.
- Non-resident Trust: This is a trust administered by trustees who are not resident in the UK for tax purposes.
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Equity release can also reduce the value of your estate and bring it below the IHT threshold, so there is a reduction in the amount
of Inheritance Tax owed.
Why give hard earned assets to the taxman when you could give them to your children or grandchildren instead and give them a great start?
Inheritance tax planning is a complicated area, so always speak to a professional adviser. We can be reached on 0203 840 5011 or email mwade@equityreleasekensington.co.uk.
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