Inheritance Tax: How to Avoid Inheritance Tax and “Leave Your Family an Inheritance” | Personal finance | Finance
Leave a legacy for your family – not the taxman! Famous wealth mogul Warren Buffett is often quoted as saying, “Someone is sitting in the shade today because someone else planted a tree a long time ago.”
You too can pass on the wealth and make sure it stays within your family – there’s no point in working hard all your life and not being able to pass it on.
Protecting and preserving your wealth can be achieved with careful planning, and you’ll be happy to know that it can be simple and extremely profitable.
You should always seek professional legal advice to ensure your plans are suitable, as they can easily go wrong when you least expect it.
Inheritance tax planning – don’t get caught!
Inheritance tax, generational wealth or estate planning used to be the preserve of the rich and the wealthy.
However, rising house prices over the past few decades and the shrinking zero rate bracket have pushed many into the “rich” bracket.
READ MORE: Inheritance tax revenue hits record highs – how to legally cut the IHT bill in the new tax year
You may not feel like you’re living a luxurious lifestyle, but that doesn’t mean you’re not asset-rich. Inheritance Tax (IHT) is unofficially one of the most hated taxes and perhaps the majority of you think it is unfair to be taxed on wealth accumulated over a lifetime.
However, with careful planning, it’s one of the only taxes you can reduce (or get rid of altogether), meaning you can relax and leave your assets to your heirs – but you have to plan!
You have the power to choose from a range of methods to reduce inheritance tax, helping you legally save up to hundreds and thousands of pounds.
Each person receives an allowance of up to £325,000 (£650,000 for married couples) free of inheritance tax, technically known as the zero rate band; all of the above are subject to 40% tax.
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£1million residence reduction
Suppose you plan to leave your principal residence to your children. If so, you could benefit from the Residence Nil Rate Band (RNRB), an additional zero rate bracket introduced in 2017 which allows an additional £175,000 increase to your zero rate bracket (£325,000).
This means that if you are married you can donate your main residence and pay no inheritance tax up to £1m (£325,000 + £175,000 x 2). The additional deductible is only available on the principal residence and is not applicable for other properties. The following exclusions also apply:
• Properties above £2.4m (properties above £2m will have their allowance reduced by £2 for every £1 above; if the value of the property is £2.4m or above, the relief will be entirely lost).
• Unmarried couples will only benefit from half of the RNRB.
• Only children, stepchildren, foster children, grandchildren or guardians are eligible – anyone else is exempt.
*Note that IHT allowances and taxes are based on 22/23 and are subject to change in the future and may be different depending on your jurisdiction.
* The following figures, including zero-rate bracket, tax-advantaged allowance, tax and eligibility criteria, are subject to future change.
*The IHT figures provided are indicative, and you should seek financial advice for personal recommendations.
You may not feel like you’re living a luxurious lifestyle, but that doesn’t mean you’re not asset-rich.
It’s not the most compelling thing to do, and I’m sure you could think of a million other things that tickle your fancy.
However, the sooner you address IHT responsibilities, the easier it is to implement an effective solution. Too often people fail to address IHT because they may not understand their options
and I have the impression that it will be too complex. There are a variety of options available, so there’s likely to be one to suit you, whatever your needs and circumstances – so explore them all.
Copy taken from THE MONEY EDIT: Your No Shame, No Blame Guide to Taking Control of your Money by Makala Green, published by Yellow Kite £16.99