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Can you protect your family from inheritance tax?

Inheritance Tax

Inheritance tax can be a complex subject. There are ways to reduce the amount of inheritance tax due on an estate, but these could incur their own set of taxes. When it comes to inheritance tax it is highly recommended that you speak to a financial adviser.

If you leave your estate to a spouse they do not have to pay tax, even if your estate value is over the threshold. They are also able to carry your allowance over. In essence this will double the value of the estate that they can leave to someone without being subject to tax.  The tax-free allowance is due to increase again in 2017. By 2020-2021 a married couple could potentially leave an estate of £1million tax free to their children. If you are not married or in a civil partnership then this amount is significantly less and you should make provisions for inheritance tax.

It is possible to give regular gifts before you die to reduce the amount of your estate. However, any gifts given within seven years of your death could still be subject to inheritance tax. There are ways to protect these gifts, but the law around this is complex.

The same goes for trust funds. Although they could reduce the inheritance tax bill they may be subject to their own set of taxes and can get pretty complicated.

If your estate is over the threshold for inheritance tax then you may be considering these options. If you are considering these options then you should seek professional advice.

Inheritance Tax

There are other ways to reduce the tax bill for your loved ones. You can take out insurance policies. Although they don’t reduce the bill they will cover the costs so that your family don’t have to pay the tax. This can be very beneficial when the money is tied up in property. Your loved ones will incur interest charges on the tax until the property is sold unless they can pay it out of their own pocket.

Another way of reducing the bill is to make a charitable donation equal to 10% or more of the estate. This can reduce the tax from 40% to 36% which can save thousands depending on the value of your estate. Paying into pension schemes instead of savings schemes will also help reduce the amount of inheritance tax.

Whether you are married, in a civil partnership or single, you should prepare a will. This will help you make plans for your estate. The heirs to your estate may be subject to income tax or capital gains tax on certain aspects of your estate. You really need to plan every area carefully to avoid leaving them with big tax bills.

A financial adviser will be able to help you plan. They can explain the different options for reducing inheritance tax or making provisions to cover it when you die.

At Rockwood we’re passionate about pensions and can help you understand what your options are. Whether you have one or several pensions we can review them for you and explain the advantages and disadvantages of consolidation. If you do decide to switch or consolidate we can help you chose the pension scheme that is right for you. This will be based on your circumstances now and the lifestyle you want to achieve in the future. All of our advice is completely impartial.  If you’d like advice on existing pensions or setting up a new pension then we’d love to help. Contact us today to start making the most out of your pensions now.

Nothing in this blog constitutes financial advice or recommendations, for more information please contact Rockwood Financial Solutions on 0330 332 2679 or here.