Planning for IHT liability
Planning for IHT liability is absolutely vital, in order to ensure that your loved ones or chosen charities receive as much as possible from your estate, and the taxman as little as possible.
We cannot emphasise enough how important it is to start planning your estate right now. There are stipulated time periods within English law which have significant bearing on your estate planning and, should you leave it too late, you run the risk of ultimately increasing the amount of inheritance tax to be paid.
For example, the concept of "gifting" has long been recognised as an accepted means of reducing the value of your estate whilst you are still alive – thereby reducing inheritance tax liability after you've gone. Small gifts up to the value of £250 each time can be gifted to as many loved ones as you wish. In addition, a parent can make a £5000 wedding gift, a grandparent can gift up to £2,500 for their grandchild's wedding and anyone else, up to £1000. However, there is a condition attached to these gifts.
As the individual giving a gift to a beneficiary, you must then live for at least another seven years from the date of the gift, if the value of your estate is to be reduced by that amount. Should you not live that long, then your executor will be expected to pay a percentage of the whole IHT liability. This is known as Taper Relief. So, should you die within three to four years of making a gift, then 80 percent of the inheritance tax will be charged. Alternatively, between years six and seven, 20 percent will be charged.
From this then, it should be clear that you need to start planning for IHT liability well in advance. Any delay could cost your loved ones potentially thousands of pounds.
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