Britons risk throwing away thousands of pounds because they do not fully understand the IHT rules. One mistake which can cost someone dearly is not having a proper plan in place.
Recent figures show that IHT receipts for April 2022 to January 2023 are £5.9 billion, which is £0.9 billion higher than in the same period a year earlier.
Britons are spending more than £100,000 on court cases because people are failing to make their inheritance planning wishes clear while they are still alive.
Financial expert Carla Morris said: “If you or your family members are reluctant to touch the subject at all, it’s best to approach it in a transparent but compassionate way.”
She continued: “Ensure all parties are clear on what their family’s wishes are in terms of the estate, as well as a broad understanding of what is most important to them and how everyone can be supported.
“Leaving this conversation until someone is ill or it’s too late can cause huge amounts of stress, loss of thousands and will not allow you the clarity of foresight and expectation management for all involved”.
A Will or testament is a legal document that expresses a person’s wishes as to how their property is to be distributed after their death and as to which person is to manage the property until its final distribution.
If someone dies without a Will then they could lose thousands in IHT that could otherwise be avoided.
In complex or blended family situations, having a Will can make it easier for money to be distributed after death, to avoid it going to distant family members or the taxman.
Having an up-to-date Will is essential if people want to make sure their wishes are carried out correctly.
Britons who have already made a Will might need to revisit it to benefit from the residence nil-rate band as this relief is only available if assets are left directly to descendants.
Individuals are urged to make the necessary arrangements to avoid falling into the IHT trap and spend time planning how to give assets out in the most tax-efficient way.
Andrew Tully, technical director at Canada Life explained different ways people can reduce their IHT bill.
He said: “The current tax-free allowance of £325,000 is frozen until 2027/28.
“This freeze, plus house prices skyrocketing in recent years, and soaring inflation, mean that more and more families could face an unforeseen and unwelcome inheritance bill from the tax man.
“Indeed, the belief that IHT is strictly for the affluent no longer applies. However, there is a considerable amount of planning which can reduce IHT bills.
“These include setting up a trust, making full use of gift allowances which allow you to pass on money to family while reducing your estate, and making a will and leaving a legacy to charity.
“Pensions are also normally excluded from your estate for IHT purposes. You can potentially pass on your pension in a tax-efficient way so take this into account when deciding which assets you use to provide an income in later life.
“Expert advice will be able to understand your specific situation and make the most appropriate recommendation for you and your loved ones.”
Each year people can give away £3,000 which will not be subject to IHT.
Britons can give £250 to any number of people each year (as long as they haven’t used another exemption on the same person).
Parents can give £5,000 to each of their children as a wedding gift.
Grandparents can give £2,500 and anyone else £1,000.
If a gift is regular, comes out of income and does not affect a person’s standard of living, any amount of money can be given away and ignored for IHT.
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