“The only certainties in life are death and taxes” (Benjamin Franklin).
Inheritance tax is a tax which is payable on the value of your estate at the date of your death and potentially on lifetime gifts. It is charged at a flat rate of 40% on the value of your estate over an exempt amount known as the nil rate band. The nil rate band is currently £325,000 although in respect of widows or widowers who die after 8 October 2007 the nil rate band may be increased by any unused proportion of the nil rate band applicable on the death of their pre deceased spouse.
In addition, new legislation has introduced a residence nil rate band with effect from 6 April 2017 which, provided that certain statutory requirements are satisfied, could enable an additional £100,000 to £350,000 worth of assets to be passed on to the next generation without a charge to Inheritance Tax (see attached note).
Nevertheless given the value of property, an increasing number of people are being caught by inheritance tax. It is important to review this in the context of making a Will as it may be possible to reduce the incidence of Inheritance Tax depending on your own personal circumstances.
The act of making a Will provides an opportunity for discussion about suitable lifetime tax planning to minimise the impact of Inheritance Tax on your estate and the assets that you can leave to your loved ones, whether by way of lifetime gifts or by putting money into trusts either during your lifetime or upon death. Appropriate action can then be taken to ensure that your estate pays as little as possible in Inheritance Tax using effective tax planning methods.