Inheritance tax is a tax which is paid on the value of all you own when you die. Unless you have been lucky enough to have heard about it in your lifetime it is one of those taxes which only your loved ones will find out about when they have to pay a large tax bill out of the very inheritance you wanted to give them.
The threshold above which you must pay 40% tax is currently £325,000 (fixed until 2016). So, in the worst case situation, if your estate (everything you owned at the time of death, including your house value) was, say, £425,000 then you would have a taxable estate of £100,000.
This would give rise to a tax bill of £40,000.
£40,000 less going to your loved ones.
The rules involved in inheritance tax are complex and it is for this reason alone it is important to discuss your situation with an APS Associate, as only then will you be able to understand its potential effects on you, whether your loved ones will lose out on some of their inheritance and, more importantly, what can be done through APS to reduce or even eliminate its effects.
The Chancellor recently changed the inheritance tax threshold for a married couple to £650,000 for the current tax year, providing they leave everything to each other on first death.
Prior to the changes in legislation, when one spouse died the survivor inherited everything tax-free. So, when the survivor died their inheritance tax allowance was limited to whatever the threshold was at time of death. So, the allowance of the first-to-die was never used – only the allowance of the surviving spouse.
The new rule allows for the surviving spouse to inherit all of their deceased spouse’s inheritance tax threshold, on the condition that the deceased did not give any of their assets to anyone else other than the survivor. So, this year the survivor could die with 2 x the inheritance tax allowance of £325,000 = £650,000.
However, it’s not all good news.
Firstly, the new system doesn’t help couples who are not married, and it doesn’t help those who don’t want to leave everything to the surviving spouse. Both are still liable for inheritance tax.
What can be done?
If you are an unmarried couple, or for complex family reasons giving everything to each other isn’t what you want to achieve in your Wills, APS can advise you on how best to save you from paying inheritance tax through the provision of a special inheritance tax saving Will. Please contact us to make an appointment where we can discuss your personal situation in detail and provide you with unbiased impartial advice.