Guide to Leaving a Tax Efficient Legacy: Passing assets to the next generation
If you thought Inheritance Tax was just for extremely wealthy people to worry about, think again. Rising property prices have meant more estates than ever are likely to face an Inheritance Tax bill.
You’ve worked to build up your wealth. But now it’s time to make plans so your loved ones can get the most from the estate you intend to leave behind. If you think you might be affected by Inheritance Tax, it can be tempting to hold off making plans to
do anything about it. But the truth is that it’s better to plan earlier for Inheritance Tax.
Estate planning is an essential element of preparing your finances for when you are no longer around but want to make sure that as much of your estate as possible is exempt from Inheritance Tax. Current thresholds are frozen until at least 2026, so it’s likely more estates could trigger a 40% Inheritance Tax bill over the coming years.
Inheritance Tax planning options
On your death, the first £325,000 nil-rate band (2022/23) of your estate is exempt from the 40% Inheritance Tax. However, you can also make financial gifts that will reduce the value of your estate when you die. For those who have accumulated a reasonable amount of wealth and who have children, the seven-year rule can be taken full advantage of.
This is one of the most popular, and cost- effective, Inheritance Tax planning options relating to gifting some of your wealth to loved ones before you die. The idea being that the people who matter to you most could start to benefit from some form of inheritance earlier.
Gift reduces each year
It also reduces the value of your estate. Meaning, when it’s assessed for Inheritance Tax, your potential liability could prove lower. Or, even better, you don’t have one at all. In order for bigger financial gifts to be fully exempt from Inheritance Tax, you need to live for at least seven more years.
If you die within seven years of making the gift, it is still considered part of your estate and it will be included in your Inheritance Tax assessment.
If you die between three and seven years, you would still have to pay some tax on the gift if it exceeded the available nil-rate band. The amount payable on the gift reduces each year once you have survived the gift by over three years. Only after seven years is the full gift no longer part of your estate for Inheritance Tax purposes.
Maximise the amount of inheritance you leave to loved ones
There are many ways you might be able to reduce (or even eliminate) a potential liability. But the longer you wait, the more expensive some of these options might prove.
It goes without saying that none of us knows when our time will come. That’s why it can really help to start making plans now. Doing so could help you maximise the amount of inheritance you leave to loved ones.
Who are Vizion Wealth?
Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.
All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.
The information contained in this article is intended solely for information purposes only and does not constitute advice. While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article.
