Who do you love more, your children or the taxman?

 In Inheritance & Estate Planning, Inheritance & Estate Planning, Parkgate Blog, Z Our Experts View

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Over the course of your life, your children might  cost you much more to bring up than the taxman takes from you in tax, but do you really want to leave them with the burden of a tax bill after you’ve died?

Every year, too many people die and leave their children with less of an inheritance, and more of a headache. It can be the same for other beneficiaries of their estate too.

So how has this unfortunate situation come about?

The fact is, many people now find themselves in a position where their estate would be liable to Inheritance Tax on their death. They’re the people in the ‘squeezed middle’ we hear so much about.

It’s easy to see why. The increased value of their home alone can take them vulnerably close to the Inheritance Tax threshold. With the current ‘nil-rate-band’ for Inheritance Tax £325,000*** for an individual and £650,000*** for a married couple, any part of their estate above this value is liable to Inheritance Tax. This is charged at 40% (www.hmrc.gov.uk).

Here’s an example. A married couple has a home worth £400,000 with other assets and investments totalling £350,000. This leaves £100,000 above the nil rate band, which in turn creates a tax bill of £40,000.

It can be a big problem for children, or other beneficiaries of the estate. Many people are under the false impression that parts of the estate can be sold or investments surrendered to pay the tax man. The reality is that the taxman has to be paid first before the estate can be released to them.

So is there a solution?

Yes, the good news is that for many people Inheritance Tax planning is relatively straightforward and can be planned for. Using Trusts, gifting, transfers and similar arrangements can mitigate and minimise the tax burden as far as possible. Similarly, it is vital that your will is correctly written and kept fully up to date.

A comprehensive review of your current financial situation with a financial planning expert can show you how you should plan to reduce the Inheritance Tax your children have to pay.

With tax rules and regulations are changing rapidly, isn’t it time you gained the knowledge you need ensure your hard earned wealth is passed to those you care about, rather than disappearing into the taxman’s coffers?

***Residence nil rate band could apply which has the effect of extending the nil rate band to up to £1m for a married couple. Please speak to one of our financial planners to look at your personal situation and see how this affects you.

Inheritance Tax Planning, Will Writing, Trusts and Taxation are not regulated by the Financial Conduct Authority.

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Rob Whittle
Rob is an equity partner of Parkgate and has been providing professional financial advice to clients since 1985. Rob specialises in retirement and estate planning with an emphasis on wealth management and estate transition.