There is more to inheritance tax planning than simply reducing the amount of tax paid on your estate. Taking the time to arrange your affairs in such a way that less of your assets are lost to tax, and more is passed to your chosen beneficiaries, is one way of leaving a positive legacy for the generations who follow you.
There is more to a legacy than simply cash or assets. A legacy is also a measure of the difference that you have made, a difference that continues after your lifetime.
Your legacy can be a positive contribution to your family, your community and the environment in which they live, all represented by the decisions you make when it comes to inheritance tax planning.
Plan to make the most of your legacy
Only the very wealthy used to be concerned about inheritance tax. But the rise in property values over the last couple of decades has significantly increased the numbers who could now be liable.
If your estate is valued at more than £325,000, tax will be paid on anything above this amount at 40%. (For married couples and those in civil partnerships, the joint threshold is £650,000).
Your estate includes the combined sum of your savings, your investments and other assets, and, of course, your home. The value of this alone could push you over the tax threshold, even though you might consider your overall wealth to be relatively modest. Paying tax at a rate of 40p in the pound could lead to a bill for thousands of pounds.
By taking the right preparations in advance you can reduce the amount of tax to be paid, and perhaps eliminate it entirely. This allows more of your wealth to pass to the beneficiaries of your choice, such as family and charities.
Inheritance tax planning rewards charitable giving
Leaving legacies to charities is one way of retaining control over who benefits from your estate, as these gifts are exempt from inheritance tax.
The 2012 budget has further increased the benefits of charitable giving, by reducing the inheritance tax rate from 40% to 36% where at least one tenth of an estate is left to a qualifying charity.
This rate change effectively rewards those who want their legacy to be one which provides substantial benefits to good causes, rather than passing everything to their family.
A legacy is not only the gift that you make to those who inherit from you; it is also the consequence or effect of your choices and actions. Deciding to invest time in inheritance tax planning means a smaller proportion of your estate is taken in tax and a larger amount is passed to the individuals and organisations of your choice.
