Inheritance tax: Value of planning shown as ‘Free Wills Month’ starts – do you have one?

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Inheritance tax is levied on estates valued at more than £325,000 and so long as wills are in place, assets should be passed on to the correct beneficiaries and no more tax than need be is paid. Worryingly however, research from Royal London showed that as many as six in ten parents don’t have a valid will in place.

Despite this, there is some evidence that the situation could be on the up soon, as Emma Watson, the Head of Financial Planning at Rathbone Investment Management, commented: “Writing a will is something many people put off as it forces us to come to terms with our own mortality.

“But since Covid-19, significant numbers of people have looked to make or update their own will, either through digital or more traditional means

“For many of us, a will can be a very simple document.

“For others, particularly those with non-nuclear families — including children from a first marriage and stepchildren from a second, for instance — it can get more complex. Wills also need updating — particularly after life events like divorces, weddings and births of children and grandchildren.

“It’s important to review your will regularly to make sure that it matches your current wishes.

“If you’re looking to get your financial affairs in order, wills are a good, and important, place to start.”

As mentioned, now may be the best time to look into wills as October is Free Wills Month, a scheme backed by several charities which offers free will services to those aged over 55.

Getting a will organised could be especially prudent at the moment as additional analysis shows HMRC has increased how much inheritance tax revenues it receives, with a lack of planning likely contributing to this.

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As Emma continued: “The number of people paying IHT has doubled in the past nine years.

“The tax generated £5.4billion for HMRC in 2018/19.

“Each of us has a nil-rate band (the amount of assets that are exempt from IHT) of £325,000.

“This rises to £500,000 if you own your home (or a share in it) and plan to leave it to your children or grandchildren and your personal estate is worth less than £2million. It means a couple may have a combined IHT exemption of £1million.

“The IHT rules are complex, and a financial adviser can help you navigate them safely.

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“With smart planning, you can seriously reduce the amount of tax paid from your estate.”

Currently, the Inheritance tax rate is 40 percent.

This can be lowered to 36 percent if at least 10 percent of a total estates value is left to a charity, which can be organised through a will.

It should be remembered inheritance tax is only levied on the parts of the estate above the £325,000 threshold and not the entirety of the estate itself.

Additionally, the following actions may also reduce an inheritance tax bill:

  • Putting assets into a trust for heirs
  • Leaving an estate to a spouse or civil partner
  • Paying into a pension instead of a savings account
  • Regularly giving away up to £3,000 a year in gifts

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