insideKENT Magazine Issue 34 - January 2015 | Page 131

BUSINESS PLANNING FOR INHERITANCE TAX INHERITANCE TAX (IHT) CAN COST HUNDREDS OF THOUSANDS IN THE EVENT OF A DEATH. HOWEVER, WHILST IT MAY NOT BE AT THE TOP OF YOUR LIST OF THINGS TO THINK ABOUT, IHT SHOULD BE FACTORED IN AND CAREFULLY PLANNED FOR. IT IS POSSIBLE TO MITIGATE THESE TAXES AND YOU CAN END UP LEAVING YOUR LOVED ONES MORE OF YOUR ESTATE. First, you’ll need to work out how much tax will be owed on your estate; therefore, you will need to know how much your estate is worth. Your assets will include any cash, investments, property, vehicles and pay outs from life insurance payments. When calculating your estate, you can deduct your debts from these assets and subsequently work out what inheritance tax is owed on that. Subject to certain exemptions for assets that are used in business, for example, your estate will automatically owe 40% tax on anything above the current £325,000 inheritance tax threshold when you pass on. If you decide to leave 10% of your assets (or more) to charity, this inheritance tax will be reduced to 36%. So, if your estate will be worth more than £325,000, which is likely if you own your own property and have savings, you will need to plan to deal with inheritance taxes. If your assets are worth £600,000, for example, then your loved ones will pay nothing on the first £325,000, but they will pay 40% tax on the balance of £275,000. The current government has proposed raising the threshold to £500,000 in the future, but this has yet to be legislated for. One valuable exception to the inheritance tax rules is that if you are married or in a registered civil partnership. In this case, all of your assets left to your spouse are free from inheritance tax. Your spouse will also gain your tax-free allowance if you have not used it, so that in the event of their death, they can leave up to £650,000 of your joint assets tax-free. The easiest way to avoid any taxes after your tax-free allowance is to think about what you want to give to people many years before you die. Of course, nobody knows when they're going to die, but this will make a difference to your tax bill. It is common for people to give gifts of money whilst they are still alive – but be careful, as this too will be subject to inheritance tax if the person dies within seven years of making the gift. This does not apply however, if the gift is up to £3,000 as a donor can give this amount away each year and it will be completely free from inheritance tax. 131 It’s important to seek financial advice when it comes to planning your inheritance and your Will should be constructed under the watchful eye of an expert. Except for HMRC, nobody wants you to pay inheritance taxes, so a financial advisor will lead you in the right direction. If you would like any more information about Wilkins Kennedy’s services, please contact Rick Schofield on 01233 629255 or [email protected]. www.wilkinskennedy.com