It is not something that is nice to think about, but it is important to plan ahead for when you are no longer around. Planning your inheritance ahead of time means that it is done and you do not have to worry about it, plus it can also save your loved ones a lot of stress during what will already be a challenging time when you are no longer around. Not only this, but planning ahead could help you to avoid leaving an inheritance tax bill down the line.
Inheritance Tax Threshold
The Inheritance Tax (IHT) threshold is £325,000 and the rate is 40%, which means that you could leave behind an inheritance tax bill on anything above the £325,000 threshold. The threshold is raised to £500,000 if the estate is left to your children or grandchildren.
It is also important to be aware that the IHT threshold has been frozen until 2028. This is one of the main reasons why the amount of tax collected by the government has been rising in recent times with rising inflation and soaring property values seeing more and more people cross the £325,000 threshold.
Following on from this, 14% more people had to pay IHT in December 2022. This can be difficult to avoid and a nasty surprise for many during a difficult period. One of the best ways to pay your IHT bill is to take out an executor’s loan, which can be a quick and easy way to settle the IHT and could also help to speed up the distribution of inheritance to beneficiaries.
With an increasing number of people finding themselves facing an IHT bill, it is important to plan ahead. While sometimes an individual will be well over the threshold and there is not much manoeuvring that can be done, you might find that there are steps that can be taken to reduce a potential IHT bill.
Start Having Conversations
It is also a good idea to start having these conversations early so that your loved ones know what to expect and so that you can clearly communicate your wishes. You do not want to leave it too late or start discussing delicate financial matters during an emotional time, so it is always best to start having conversations about inheritance before they are needed.
One of the most common strategies used to reduce the value of an estate is gifting. Gifting assets to loved ones while you are alive can lower the value of your estate and allows your loved ones to enjoy the gift while you are still alive, but 7 years must pass before the gift is completely tax-free.
Nobody likes to think about inheritance, but it is important to plan ahead so that you can avoid difficult situations for loved ones in the future and get your affairs in order.