The current UK inheritance tax is a debatable subject among the taxpayers. Most of us think that a person who paid all the taxes on the earnings in his or her lifetime than the government has no right to levy the tax on that money for a second time once the person has died. This is the reason that this type of tax is also known as “Double Tax” since the possession is taxed two times. Because of this double tax, there are many people who disapprove it and are submitting a petition against the inheritance tax so that the government may drop this tax. If someone is in a position of obtaining any inheritance, then that person must know that, what inheritance tax is and how it is paid.
The inheritor must verify whether the tax on the inheritance is liable under the Inheritance (Provision for Family and Dependants) Act 1975 and Inheritance Tax Act 1984. Inheritor is not required to pay the tax on such inheritance, which is left by the late spouse. Every person can pass on £325,000 before their heirs pay inheritance tax, which is 40% on anything above that amount. This is called the inheritance tax ‘nil-rate band’. If you’re married, you can inherit any unused allowance from your spouse or partner. That means that married couples and civil partners can pass on £650,000.
If the inheritor is liable, then know how much tax will be levied. Beneficiaries are required to pay the tax on their inheritance share. Estate will owe tax at 40% on anything above the £325,000 inheritance tax threshold when a person die (or 36% if someone leave at least 10% to a charity). Dealing with it is one of the biggest thing you can do, as some simple actions can save you £100,000s.
How you can save paying huge amount of Inheritance Tax
Following is a simple and easy to understand guide to avoid inheritance tax:
First, choose the assets you want to be kept in trust. Mostly, Settlers decide to keep a small amount in the beginning and with time they continue to add more assets. However, you can also do a large contribution in the beginning as death can come any moment.
You must name your trustees. Trustees are those who decide the distribution of trust assets to the beneficiaries. In many jurisdictions, it is permitted to become trustee yourself but you will have to choose an independent trustee, one who is not from your extended and immediate family. If you fail to do so, the trust might be rejected by the court.
To avoid Inheritance tax you must hire trust solicitor who is well-experienced and can draft your deed of trust. This deed must state the name of the starting assets in trust, trustees, and beneficiaries. You must also clarify the roles and power of trustees; describe the rules for financial management, verify the decision making power of the trustees and verify the laws for the investment of the trusted assets. In the end, the deed must be notarised and signed to form the trust.
Start selling your own assets to the trust of your family over a period of years and slowly forgive your debts from the trust by using the notarised and signed papers.
Give something to friends or family members. A friend or a family member who is not your spouse or civil partner, so that you no longer get any benefit from it. It won’t be taken into account when calculating the Inheritance Tax liability when you die.