When you die, an inheritance (IHT) tax will be levied on your assets and estate if the total amount is more than £325,000. Zero percent is owed on the first £325,000 and 40 percent after that.
There are several steps you can take to lessen your IHT burden, and what follows are some of the most common allowable deductions.
If the deceased has owned them for at least two years, certain commercial assets become eligible for inheritance tax relief:
– a business interest, including participation in a partnership,
– shares that a recognized stock exchange does not list, which are known a “unquoted shares,”
- securities or shares that enable the transferor to control a business, and
– buildings, land, machinery or plants used entirely or mainly in running a business.
Gifts
These deductions range from “small gifts to individuals” to “gifts in consideration of marriage or civil partnership.” In addition, an annual amount for numerous gifts not to exceed £3000 is also deductible, but it must be kept separate from the “small gifts” allowance.
Certain gifts, such as transferring ownership of your home to a friend, are referred to as ‘potentially exempt transfers.” Potentially, these gifts can be classified as tax free when they are given at least seven years prior to an individual’s death, and other rules apply if the death takes place between three to seven years after making the gift.
Trusts
These are financial instruments that permit people to place their assets within a fund that is not regarded as part of their estate, which makes them non-taxable. Because trusts are an essential part of tax planning, many details must be settled, and it is best to seek the advice of a financial professional on this matter. Other deductions that may apply here include certain political donations, some farmland and any asset bequeathed to a charity registered in the UK .
Expatriate tax
In this case “domicile” is the key word. It is not the same as residency, and HMRC defines it as “where a person has their fixed and permanent home and to which, when they are absent, they always have the intention of returning.”
The applicable expatriate tax laws differ from the residency and income tax rules. HMRC domicility is related to whether you resided in the UK for 17 of the past 20 years. This is a complicated area of tax law, and confusion can arise when both the UK and the country where you now reside state that they have jurisdiction over your estate.
An independent financial adviser (IFA) can give you the information you need related to paying your offshore tax bill and provide other financial services as well. This professional has the expertise to assist you in minimising your taxes, and the advice you receive will be balanced and impartial. When you find the right financial planner, you will be provided with a tailor-made program for dealing with your offshore tax bill and other relevant estate planning issues.