Inheritance Tax is the Tax that just keeps giving!

In June 17, 2014
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Latest figures show that HMRC received more than £3bn from Inheritance Tax in 2012/13, an increase from the £2.91bn in the previous year. With house prices increasing again and our economy improving following a prolonged recession, it is inevitable that more and more Estates will become liable to Inheritance Tax. This is to be expected even more so, following on from Mr Osborne’s budget in April, with the Nil Rate Band now frozen at £325,000 until 2018 (in his 2012 Autumn Statement the Chancellor had said the NRB would rise in 2015 to £329,000).

Let us not forget, that Inheritance Tax is a voluntary Tax. HMRC has approved a number of arrangements that legitimately mitigate Inheritance Tax, but you need to know about them and what options are available to every one of us, so that you can plan effectively and also take full advantage of what our own Government is happy to let us all do. If you do not think ahead and plan effectively, then you just have to accept the consequences.

What is the true rate of Inheritance Tax? 40%? 60%? 80%?

We are sure that for most readers, you probably think the answer is simple? Surely it is 40% on all assets over and above the Nil Rate Band. Of course, it depends on your viewpoint. For example, if you’ve paid 20% Income Tax or 40% Income Tax all of your life and then your family gets taxed 40% on what you leave after your death, then it is a very different prospect. If you then want to take it one step further, you’ve paid Income Tax all of your life then you pay National Insurance contributions (just another type of Tax), then you pay VAT on what’s left in your bank after the Tax has been taken and then on top of that comes the Inheritance Taxation.

Thankfully, as mentioned, you can legitimately use Government approved methods to reduce or wipe out your Inheritance Tax and there are a whole range of ways that this can be achieved; whether that is by use of BPR (Business Property Relief) qualifying assets or whether that’s by use of Trusts, of which there are a whole range of options again.

So why does such vast amounts of money go to the Inland Revenue every year in Inheritance Taxation? The answer is quite simple, a vast number of people do not know what they can do and do not take appropriate professional advice regarding what they can do. There is a saying that we think all of us could benefit from which is: “You don’t know what it is that you don’t know”. Of course, if no one has ever pointed out these options to you, how should you know any different?

It’s a bit like discussing a Basic Will. The most common Will in the UK today for a married couple with children; typically says, leave everything to each other on first death and then on second death, give everything to the children or maybe the grandchildren. On the surface this seems perfectly fine and reasonable, but from an Estate Planning point of view, it is a complete disaster. There is absolutely no protection in place to resolve an Inheritance Tax problem, not to mention all of the other problems that can and often happen to people later in life. What if our children, after Inheriting, go through a divorce? What if our children get into financial difficulty later in life? What if our children need Residential Care, later in life?

The list of ‘what ifs’ could go on and on and even if they manage to avoid all of these possible problems, then their Inheritance from you goes into their Estate and will be taxed all over again when their time comes. True Estate Planning, however, allows us all to choose a different path in order to make sure that the right money goes to the right people at the right time and then has the best possible chance of staying where it belongs.

If you are concerned about this or any other area of Planning and would like to speak with a Consultant, then please contact us on 01489 877547 to book a no obligation Initial Consultation.


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The opinions contained within this blog, do not constitute financial advice and no action should be taken based on this content alone.

Jasmine has been a qualified Financial Planner since 2008. She has also been a member of the Society of Will Writers since 2012. She is passionate about helping Clients build their wealth and achieve the financial lifestyle they desire. Her areas of expertise are that of Savings, Investments, Pensions and Retirement Planning.

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Redwood Financial Family Wealth & Estate Planners Ltd is Directly Authorised and regulated by the Financial Conduct Authority. FRN number 774469.

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The Financial Conduct Authority do not regulate, Will Writing, Buy to Let Mortgages, Auto-Enrolment, Tax Advice and Estate Planning. Your capital is at risk. Investments can fluctuate in value and investors may not get the amount back they invest. The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK.

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Redwood Financial Family Wealth and Estate Planners Ltd Company Number: 08926661
Registered Office Address: Wellesley House, 204 London Road, Waterlooville, Hampshire,