As a member of society who has paid their way for their entire life, it can come as a surprise that when you pass away whoever you have left your money to will be charged inheritance tax on the assets left to them.
Fortunately if you are a property owner who is worried about getting a hefty tax bill there are ways you can minimise the amount that needs to be paid. Carrying out some careful planning in advance will mean that you can protect your assets and make sure the full balance gets passed on to the rightful owners.
What Am I Liable For?
Any investments, cash or property you own will be liable for 40% tax over the threshold of £325,000. If you do not want HMRC to take nearly half of what you want to leave your children and grandchildren then you are going to have to think ahead. Despite the fct death is not an easy subject to think about or speak about you are going to have to if you want the best for your children.
Think About What You Can Give Early
If you are planning on leaving quite a substantial sum to your children and/or grandchildren then why not start passing on the wealth to them early while you are still around?
There are many instances whereby you can pass on some cash to a family member without being liable to pay tax.
You can give up to £3,000 a year without any questions asked and then also “small gifts” of £250 whenever you feel like it – although it is worth being mindful this could be looked into if it is too often.
One of the other occasions you can pass on some tax free cash without being asked too many questions is ahead of a child’s wedding. Up to £5,000 can be given as a wedding gift before the big day.
How Can I Avoid Inheritance Tax On My Property?
Many people think the best way around paying inheritance tax on property is to “gift” the property to the children and continue to live there.
Unfortunately this method is severely misconstrued and if you are still living in the property, it will still form part of your estate for the purposes of inheritance tax.
You can also take out additional borrowing to reduce the equity then buy other assets that are able to be sheltered against inheritance tax.
How Can I Avoid Inheritance Tax On My Investments?
Investments are likely to make up a large part of your estate and push it over the threshold that makes it liable for the 40% inheritance tax.
If you are feeling confident that you will survive for 7 years afterwards then one of the best options is to gift the investment properties to your beneficiaries while you are still living.
The investments will still grow and fluctuate in exactly the same way they would have when they were in your name so whoever you pass them on to will not be financially disadvantaged from you doing this.
One of the reasons this solution is far from perfect is because you will still be liable on Capital Gains Tax. But if you want to know exactly how much tax is going to be charged rather than worry towards the end of your life about how much your children are going to have to pay to access your estate then it may be a better option.
What Is The Best Way To Manage My Estate To Minimise Taxes?
For any type of equity you have that is going to be passed on when you die – starting the process of transferring over to your heirs while you are still here really is the best solution. Not only will you be liable for a lot less tax, but you will also avoid added stresses to the last years of your life from worrying about how your estate will be handled.