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Rising property values mean that more families are being caught in the inheritance tax (IHT) net, according to the latest data from HM Revenue and Customs. In the tax year 2021-2022, there were 27,800 taxpaying IHT estates, an increase of 3% from the previous year, resulting in a total of £5.99 billion paid in tax.
This trend is expected to continue as property prices rise, which is a concern for many families. However, making a will can significantly reduce the inheritance tax burden through careful planning.
IHT is set at 40% on estates worth over £325,000. This threshold increases to £500,000 if you pass your home to your children or grandchildren, due to the residence nil-rate band (RNRB). Married couples and civil partners can combine their allowances, allowing up to £1 million to be passed on tax-free. Any amount over these thresholds is taxed at 40%.
Creating a will helps ensure that your estate is managed efficiently, using available tax exemptions and reliefs:
Spousal Exemptions: Assets left to your spouse or civil partner are exempt from IHT. By specifying this in your will, you ensure they inherit without tax, and any unused allowance is transferred to them.
Lifetime Gifting: A well-structured will allows you to make tax-efficient gifts, reducing your estate’s taxable value. You can give up to £3,000 each year tax-free, with larger gifts becoming exempt if you survive for seven years.
Using Trusts: Trusts help you pass on assets in a tax-efficient manner. By placing assets in a trust, they are removed from your estate, potentially reducing the IHT payable.
Charitable Donations: Leaving 10% of your estate to charity reduces the IHT rate from 40% to 36%. Your will allows you to include these donations and benefit from this tax relief.
Making a will is not only essential for ensuring your wishes are followed, but it also helps protect your estate from unnecessary tax. Through effective planning, you can ensure that more of your wealth goes to your loved ones.
For more information or advice on family law matters, readers are encouraged to contact the legal team at southgate solicitors at 02080040065 or hello@southgate.co.uk. It’s important to note that the content of this article is general information and not legal advice, and readers should seek independent expert advice for their specific situations. Our experienced team at southgate solicitors is here to provide expert guidance and support.
Send your details to us and we will call you back to take further information about your matter, or you can click the number below.
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