HELPING YOUR DEPENDANTS AVOID THE TAX MAN
Thinking about your dependants natually leads onto to thinking about the possibility of paying Inheritance Tax. Basically, it’s the tax that is paid on your 'estate' - everything you own at the time of your death, less what you owe. It's also sometimes payable on assets you may have given away during your lifetime. Assets include things like property, possessions, money and investments.
Estates and lifetime gifts
It is true that not everyone pays Inheritance Tax on death. It only applies if the taxable value of your estate (including your share of any jointly owned assets and assets held in some types of trusts) when you die is above £325,000 (2009-10 tax year). It is only payable on the excess above this nil rate band.
There are also a number of exemptions, which allow you to pass on amounts (during your lifetime or in your will) without any Inheritance Tax being due. For example:
Transfers of assets into most trusts and companies are subject to an immediate Inheritance Tax charge if they exceed the Inheritance Tax nil rate band (taking into account the previous seven years' chargeable gifts and transfers).
Inheritance Tax nil rate band and rates
Inheritance Tax is charged at the following rate on death:
Inheritance Tax - who pays out?
The 'personal representative' (the person nominated to handle the affairs of the deceased person) arranges to pay any Inheritance Tax that is due. It is normal for you to nominate the personal representative in your will (you can nominate more than one). They become known as the 'executor'. If you die without leaving a will, a court can nominate the personal representative. In this case, they are known as the 'administrator'.
Valuing your ‘estate’
For Inheritance Tax purposes, the personal representative will value all of the assets that the deceased person owned. This valuation must accurately reflect what the assets would reasonably fetch in the open market at the date of death.
In most cases, Inheritance Tax must be paid within six months from the end of the month in which the death occurs. If it is not then interest is charged on the amount owing. Tax on some assets, including land and buildings, can be deferred and paid in instalments over 10 years.
Inheritance Tax can throw up a lot of issues that need careful consideration, especially as it may impact on your loved ones left behind. Our Financial advisors can take you through the various options so that for you and your family, Inheritance Tax doesn’t become a potential worry.