What you need to know about estate and tax planning

What you need to know about estate and tax planning

Tablet PC with a screenshot showing estate and tax planning work block

If you want to carry out effective estate and tax planning you need to understand the tax regime. That means, you should understand how it affects your estate. You also need to know what steps you can take to make sure your estate is tax efficient.

Will your estate be subject to Inheritance Tax?

The first thing you need to do is work out if you have a potential Inheritance Tax (IHT) problem. If your entire net estate totals £325,000 or less, you will not have to pay IHT. You calculate your net estate by adding up the value all your property, assets and investments. Then you deduct any debts and liabilities to reach the value of your net estate.

For example, your house is part of your estate. If it is worth, say, £250,000, that value will be included as part of your estate. But, if you jointly own the house with your spouse or partner, the value of that asset will probably be 50% of that value, i.e. £125,000. Then, if there is a mortgage, you need to take that into. You will then arrive at the net value of your house or interest in your house.

Another aspect of working out the value of your assets is to check whether any of them are held in trust. For instance, a pension which has not yet been converted into an annuity, will normally be paid to your nominated beneficiary rather than into your estate. If that is the case, it will not form part of your estate.

When you carry out these calculations, it will give you an indication of your potential exposure to Inheritance Tax.

What is estate and tax planning?

Estate and tax planning is how you help your loved ones retain more of your estate after your death.

You start off by carrying out the same exercise to arrive at your net estate as explained above. After that, you look at ways you can re-structure your property, assets and investments. It will allow you to consider options to mitigate the impact of IHT on your estate.

It can involve transferring some of your assets to others now rather than when you die or holding assets in a way that takes them outside of your estate. Sometimes, the steps you take might eliminate exposure to IHT completely!

Estate and tax planning is not a one-time fix. You need to keep this under continuous review to ensure changes in legislation do not impact on your plans.

Are there steps you can take to mitigate your exposure to IHT?

You have a number of options to help mitigate the impact of IHT on your estate. First and foremost, make a Will. Once you have done that, you might consider some or all of the following:

  • Leaving your whole estate to your spouse or civil partner – this would help avoid any immediate IHT issues;
  • Gifting some of your assets to others now rather than when you die;
  • Transferring property, assets and investments into a trust;
  • Donating to charities or community sports clubs through your Will;
  • Using annual gift allowances every year.

When carrying out estate and tax planning, you need to weigh up all your options.

Where do I get advice?

Here at maloco mowat parker, we help clients with their estate and tax planning needs. Stacey Parker is an experienced solicitor who practices in this field. You can contact Stacey on 01383 629720 or email Stacey at stacey@maloco.co.uk.

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