What happens when someone dies?
When someone living abroad dies, the rules for paying Inheritance Tax (IHT) usually depend on:
• How long they lived abroad
• Whether their assets (property, money and possessions) are in the UK or abroad
• If their assets in the UK are‘excluded assets’
• If their assets were put into a trust
Reducing an Inheritance Tax – it’s good to give
A new rule began on 6 April 2012 that reduces the amount of Inheritance Tax due on an estate if at least 10% of the taxable amount is given to a charity – but not to one of the other exempt bodies, unless of course it is also a charity.
Assets that pass on free of Inheritance Tax
Inheritance Tax reliefs allow some assets to be passed on free of Inheritance Tax or with a reduced bill.
HM Revenue & Customs allows you to make a number of small gifts each year without creating an Inheritance Tax liability. Remember, each person has their own allowance, so the amount can be doubled if each spouse or registered civil partner uses their allowances.
Estimating how much liability you could leave behind for your loved ones
Usually the ‘executor’ of the will or the ‘administrator’ of the estate pays Inheritance Tax using funds from the estate.
With careful planning and professional financial advice, it is possible to take preventative action to either reduce your beneficiaries’ potential Inheritance Tax bill or mitigate it out altogether.
No longer a tax that only the richest people in society have to face
As Benjamin Franklin said, the only things that are certain in life are death and taxes, and Inheritance Tax touches on both of them. When you die, the Government assesses how much your estate is worth and then deducts your debts from this to obtain the value of your estate.
Buy-to-let landlords and people buying second homes from April this year will have to pay a
3% surcharge on the stamp duty charged for the property.
The pension tax relief system is about to be reinvented. The Government announced in the Summer 2015 Budget their intention to cut pensions tax relief for high earners by introducing a tapered annual allowance from 6 April 2016 for individuals with income (including the value of any pension contributions) of over £150,000, and who have an income (excluding pension contributions) in excess of £110,000. The rate of reduction in the standard annual allowance of £40,000 is by £1 for every £2 that the adjusted income exceeds £150,000, up to a maximum reduction of £30,000.
Having a clear understanding of your protection requirements and the importance of getting the right professional financial advice as you enter the New Year are essential, and they will be of increasing significance from April when working age welfare support for mortgage interest and bereavement benefits are scheduled for reform.
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