When you die, your executors or relatives need to sort out your affairs. This stressful task can be made easier if you leave a clear and up-to-date Will which has been drafted with tax in mind.
They also need to pay inheritance tax (IHT) if the net value of your assets, including your home and any insurance policies that pay out on your death, exceeds £325,000. Any wealth above this threshold bears IHT at 40%, or at 36% if at least 10% of your net estate has been left to charity.
The IHT threshold is expanded by at least £100,000, if you leave the value of your home to one or more of your direct descendants. If that is your wish, your Will must be clear about who receives the value of your home. This home-related tax exemption will increase to £125,000 for deaths on and after 6 April 2018.
There are other ways to reduce the IHT payable on death, such as:
• Use your annual IHT allowance of £3,000 to make gifts from your capital or savings; if you didn’t use the allowance in 2016/17 you can give away up to £6,000 in 2017/18
• Make other gifts to individuals as early as possible, as they will fall out of the IHT calculation if you survive seven years after the date of the gift (but be careful not to trigger CGT charges on the gifts)
• Make regular gifts out of your surplus income rather than out of accumulated income or capital – those lifetime gifts may escape IHT
• Ensure that proceeds from your life assurance policies flow directly to a beneficiary – if the money lands in your estate on your death, this could trigger an IHT charge
• Inform your pension fund managers of who you wish to receive any undrawn funds by way of a wishes letter – such funds can be free of IHT if you die aged under 75
Action Point!
Is your Will up to date and do your executors know where to find it?
