Since the early days of the coronavirus outbreak there has been a marked increase in the number of queries being made in relation to Inheritance Tax, Estate Planning and Wills. High levels of global uncertainty have brought financial planning to the fore as many are focused on protecting their estates and ensuring the ongoing financial security of their families.
An estate refers to everything in your possession that carries value; this can be your savings, investments and properties as well as equipment, cars and jewellery. Your business also forms part of your estate and there are several important legal considerations that must be made when factoring your business and your wider assets into your estate planning.
What is Inheritance Tax and Estate Planning?
Inheritance tax, often referred to as IHT, is a tax paid to the UK government on a person’s estate after their death. It is paid as a percentage of the estate’s total value and there are certain exemptions that can be applied provided specific conditions are met.
For example, there will usually be no Inheritance Tax to pay on estates with a cumulative value of below £325,000 and most estates above this value threshold will be taxed at a rate of 40%.
Inheritance or estate planning is an important step in ensuring you retain control over your assets and how they are distributed, and that your loved ones can benefit as much as possible from the inheritance when the time comes.
Estate planning involves:
• Putting together a thorough and comprehensive will which clearly indicates your wishes
• Protecting the financial security of those named in your will
• Covering and managing all tax commitments
• Maximising the proportion of your estate that is retained after you have gone
• Planning how your business interests will be managed going forward
Sharing wealth through Inheritance Tax and Estate Planning
There is no need to wait until your death to assist your loved ones financially and there are many reasons a person may choose to do this earlier. As an individual, you are legally entitled to give up to £3000 in gifts every tax year without needing to pay any Inheritance tax.
A married or civil partnered couple can between them give up to £6000 per year. If the previous year’s allowance is unused, a person can give £6000 during the current year without needing to pay any Inheritance tax.
There are a number of alternative ways that you can share your wealth with loved ones during your lifetime, and these include civil partnership and marriage gifts, trusts, exempt small gifts and regular gifts from your income.
Using trusts to manage your Estate Planning
A time-honoured means of protecting your assets, trusts work by the estate owner assigning an asset to a trustee – usually a close friend or family member who is responsible for looking after the assets in a trust. Originally designed as a means of protecting the assets of soldiers heading into war, trusts play an important part in inheritance culture and law in the UK.
Choosing the right kind of trust for your needs is vital. They are often used to provide funds for your children once they come of age. Trusts can also be used to manage the costs involved with private education.
Ultimately, forming a trust allows you to apply conditions as to how your assets are distributed and managed. They also help reduce the amount of Inheritance tax paid and allow you to distribute your estate without the extra time and costs of probate court.
The importance of Will Planning
Carefully planning your will is one of the most effective ways to minimise the impact of Inheritance Tax on your estate, allowing you to take advantage of any applicable tax relief and ultimately leave a more substantial inheritance for your loved ones.
For those currently without a will we can help you expertly navigate the often complex laws and special considerations surrounding inheritance. The experts at Bowcock and Pursaill work to create a will that meets your financial requirements and goals.
Wills can also be amended at any point during your lifetime and we will provide a thorough review of your existing will, updating it where necessary to maximise the gains your loved ones will make.
The importance of planning your will in advance cannot be understated. When a person passes away without leaving a will, their estate will be divided according to the laws of intestacy and this can mean your estate is not distributed according to your wishes. Having a correctly drafted and up to date will prevents intestacy and gives you the peace of mind that your assets and estate are distributed in accordance with your wishes.
Planning the succession of your business
Business owners who have spent years (and considerable financial investment) building a profitable and reputable company will want to consider how the business will be managed upon their death. The death of a business owner can be a challenging and disruptive time for operations, so planning how this will be handled in advance safeguards the financial interests of the company and minimises the risks associated with this period of change.
To ensure your business and legacy can flourish after your death, we will work with you to plan a robust strategy in terms of succession. Of course, business owners often choose to take a step back from their company and we can help you prepare your exit strategy so you can start planning the next chapter of your life, whether you are planning on retiring or are looking to take on other ventures.
How Bowcock and Pursaill can help with Inheritance Tax and Estate Planning
Inheritance Tax and other tax laws can be complex and challenging to navigate so making use of our professional Inheritance Tax and Estate Planning services ensures your assets are maximised and your loved ones benefit from financial stability in the event of your death.
If you would like to discuss any aspect of your Inheritance Tax and Estate Planning, then contact our specialist solicitors. We will review your current situation and discuss the course you would like to take with your estate. Please bear in mind that we do not provide advice on aggressively avoiding tax but make use of recognised and acceptable methods to help reduce the amount of tax paid on your estate.