Do you have to pay inheritance tax all the time? This is a question that is asked very often in the practice of UK executry law. Most people seem to have this misconception that because the inheritance tax is mandatorily imposed upon the portion of their estate that exceeds the inheritance tax threshold (IHT) that it must be paid all the time. Well, fortunately, reality is different and it is actually more advantageous for you if you want to somewhat avoid or cut your inheritance tax. So as to the question of: do you have to pay inheritance tax? The short answer is, “no, not all the time.” Even if your properties actually do exceed the current inheritance tax threshold of £325,000 per person or £650,000 for married couples, there are actually several ways that you can avoid the UK inheritance tax or at least make a significant cut on it so that you can ensure that your beneficiaries are not burdened with a high amount of inheritance tax from your estate that they should rightfully inherit.
Putting Some Of Your Properties In Trust
This is one of the most common methods of avoiding or cutting the inheritance tax on certain properties. While the world of trusts can be rather complicated with all kinds of trusts such as bare trusts and trusts held for a vulnerable person, an experienced UK executry solicitor should be able to sufficiently explain what the different types of trusts are to you and which ones are ideal for the purposes that you want. So what do you want to do with a trust?
In the trust, you will be the settlor, or the original owner of the property or finances and you will appoint someone known as a trustee, who will now be the new owner of the properties and who will be legally obliged by the trust arrangement to hold and manage the properties in favour of the beneficiary – the ones who will eventually benefit from the trust arrangement. If your children or grandchildren are still at a vulnerable age, the trust will be held by the trustee until the children are capable of managing the properties themselves. So in this arrangement, do you have to pay inheritance tax? Naturally, the answer is “no.” Remember that as the settlor, you actually transferred ownership of the properties to the trust. In effect, since you are no longer the owner, then the properties you gave away to the trust can no longer be counted as your own for the purpose of computing inheritance tax.
Give your assets away
Another more straightforward method of avoiding the inheritance tax is to simply give away the portion of your assets that exceed the inheritance tax threshold. As long as you survive for at least 7 years since the gifts were given away, the gifts will be tax-free. An inheritance tax will be computed based on a reducing scale if you die before 7 years have lapsed however.
Ask your solicitor for other methods of reducing your inheritance tax.