Grandparents warned of ‘important thing to consider’ to lower IHT bill
Inheritance tax: Graham Southorn explains how trusts can help
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IHT receipts are on the rise meaning more and more people are being caught in the net, forced to pay thousands. To mitigate loss and reduce a potentially hefty bill, parents and grandparents are reminded of the “important things” which could save thousands.
Katie Brain, consumer banking expert at Defaqto shared different options people can consider to save thousands on their bill.
She said: “Grandparents/parents could use the equity in their property to help out the family early. Equity Release can be a useful product to consider when reviewing your estate for inheritance tax planning.
“Releasing equity in your home would reduce the value of your property and either reduce the Inheritance tax bill upon death, or the estate may fall under the threshold completely, provided the equity released is spent and not invested.
“If the equity released is gifted to others such as family members, this will be exempt from inheritance tax provided someone lives for seven years from the date of the gift.”
The example she gave was for a property worth £750,000.
The inheritance tax threshold is £325,000. After this people are charged 40 percent.
If the homeowners release £325,000 via equity release, their property would not incur any inheritance tax liability.
Equity release should always be carefully considered as the interest is rolled up, so can be costly.
Ms Brain suggested that Britons seek professional advice when thinking about equity release and involve the family.
In August, LV found that some 35 percent of retirees had given money to their family or friends since the start of the year.
The quarterly survey of 4,000 UK adults undertaken by the pensions and retirement firm showed that of the four million retirees that gifted family and friends, the main reason was to help with day-to-day costs and bills.
On average, those helping their grandchildren gave £15,000 while the average amount given by all adults sat at £8,400.
The figures highlight that the rise in the cost of living is affecting millions of people. Britons are warned of the gifting rules so they are not surprised by any extra bills.
Jonathon Jay, Partner with DSW Wealth Planning explained the important things to consider before people can give their money away.
He said: “Before giving money away, it is important to consider how much you can afford to give without affecting your standard of living, and whether you need some control over what is given. You can give to children or grandchildren directly, but if you would like to remove more from your estate and control how and when it is distributed, a trust arrangement may be more appropriate.
“Please note, gifts are typically subject to Inheritance Tax if you do not survive seven years after they are made. Some gifts are classed as exempt transfers and others are potentially exempt.
“Trusts and gifting methods for Inheritance Tax purposes are complex in nature and you should seek professional advice to understand how they could work for you.”
Typically, people will have a liability to IHT because they have accumulated more than they have spent, so it may be time to turn that around and enjoy the money they’ve saved while they can.
Charitable giving
Mr Jay explained that gifts to charity, regardless of size, are not subject to inheritance tax and if the amount they gift to charity via their will exceeds 10 percent of the ‘net estate’, proper could reduce their inheritance tax rate from 40 percent to 36 percent.
The net estate is the total estate value less their Nil Rate Band entitlement of £325,000 per individual (£650,000 for married couples or civil partnerships).
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