As the number of people liable to pay inheritance tax rises – the result of surge in house prices – the government continues to reuse to raise the inheritance tax (IHT) limit.
If your estate is worth more than £325,000 your heirs will have to pay 40 per cent tax on the whole value of your estate.
Since 2008-09 the number of estates liable for IHT has almost doubled.
Why are more people caught in the inheritance tax trap?
More people are paying inheritance tax because the government has failed to raise the amount you can leave before tax — the nil rate band — since 2009. Previously the nil rate band rose every year to keep pace with asset prices.
The government says it will review the nil rate band but not until 2019, at the earliest.
Plan now to pass wealth on.
Leaving your home
Does the value of your home mean your heirs will be liable to pay inheritance tax? If so, there is good news. A new ‘residential nil-rate band’ comes into effect in April. This will allow you to pass on an additional £100,000 of your property assets.
The figure will rise gradually up to £175,000 in 2020. So if you die in three years’ time you will be able to leave £325,000, plus £175,000 to your direct descendants — children or grandchildren. If married or in a civil partnership, between you, you and your partner couple could leave £1 million of assets, however, the rules for this are complex and it is advisable to seek the advice of an inheritance tax expert.
The gift of giving
Another rule allows you to give up to £3,000 a year of savings to an heir, without paying inheritance tax.
If you can afford to do this over a number of years, the tax free amount can be significant.
You can also give additional gifts you’re your income – such as a pension – as long as it does not affect your standard of living.
And finally, you can set up a trust for your children.
Whatever you decide to do, speak to a solicitor who can help you avoid making mistakes that may prove costly for your heirs.