Reducing Inheritance Tax With a Will

Inheritance tax (IHT) is tax that has to be paid when assets from a person's estate after their death are passed on to another individual. The current threshold before inheritance tax has to be paid is £255,000 and is know as the Nil Rate Band. Everything above the nil rate band is liable to a 40% taxation rate.

So for example if after a person's death the entire value of their assets including their home and savings was worth £350,000 and they were not leaving the entire estate to their spouse the estate would have to pay a total of £38,000 in tax. The IHT has to be paid before the money can be released which may mean short a term loan ha to be taken out to pay the tax bill.

It is possible, with careful planning to legally reduce the amount of inheritance tax payable by a number of methods. One method is the setting up of a Nil Rate Band Discretionary Trust which is a trust fund equal to the nil rate band which allows access to lump sums from the fund. If your circumstances allow it is possible to save the amount of tax payable by as much as £102,000.

Other factors can influence the amount of tax payable after a person's death by reducing the amount of assets to a rate below the nil rate band:

Annual gift allowances mean you are able to give up to certain amounts of money which are tax free to various individuals
Type of home ownership to allow for more money to pass under the nil rate band
Wholly exempt gifts (need a bit more)
Funeral expenses
Debts existing before death
Businesses and agricultural properties

If you would like to find out more about instructing D. M. McLean Solicitor in relation to a creating a tax efficient will then please fill out our contact form, send us an email or contact us by phone.

Further Reading
http://www.pro.gov.uk/research/leaflets/willsprobate.htm

IHT Help Sheet