Inheritance tax has been voted one of the most unpopular taxes in Britain — even more unpopular than council tax —so award-winning financial journalist Alison Steed of My Money Diva has identified seven ways you can cut your inheritance tax before the new higher threshold comes into force for couples in 2017:
1. Make a will
Almost half of us die without a will - known as intestate - according to research from Will Aid, and the Treasury gets millions of pounds in revenue as a result. It’s a common misconception that your family and loved ones will share your estate should you die intestate.
Dying without a will means the Government gets to specify who receives what from your estate. This can lead to the Treasury taking a share of what your family should inherit. Naturally, the weeks and months after the death of a loved one is the worst time to be worrying about untangling a financial mess. You can make your loved ones’ lives easier by having a valid will in place.
2. Keep your will up to date
Keeping your will up to date is a smart thing to do regardless of inheritance tax. Whenever something significant happens in your life, whether that’s getting married, divorced, inheriting money or winning the Lotto, you should update your will to reflect. Dying without an up-to-date will could result in your wishes not being carried out, leading to family conflict while legal fees eat into your remaining estate. How many people really want the lawyers to get more than their family?
3. List your assets and calculate their worth
Boring as this may be, this may be one of the most valuable half hours you’ve ever spent and it is likely to benefit your family in the future. By adding up all of your current assets - and consider any future ones you can take into account, such as an inheritance you know will be coming your way - and subtracting from that value the total of your liabilities, such as remaining mortgage debt and credit agreements, you might be surprised by just how much your estate is worth. This can help stop your relatives paying any more inheritance tax than is necessary after you’re gone.
4. Seek advice
Trying to â€˜go it alone’ and writing your own will can lead to it being invalidated, meaning you die intestate and your final wishes aren’t carried out. The State then gets to decide what happens to the assets you leave behind. Don’t let this happen, get expert advice.
5. Write your life insurance policy into trust
Leaving any life insurance payouts to become part of your estate could mean a portion of that money goes to the taxman rather than your family. By writing the policy into trust — which many insurers do for free or low cost — you can legitimately remove that from your estate for inheritance tax purposes because the policy is paid out directly to the beneficiaries rather than to your estate. Get advice before you do this.
6. Give gifts from your disposable income
If you are able to make gifts out of disposable income - meaning your normal standard of living isn’t altered when doing so - these gifts should not be considered as part of your estate and will not be liable for inheritance tax.
7. Plan when you give gifts
Giving loved ones larger gifts while you’re alive doesn’t always negate inheritance tax. Should you die within three years of giving the gift, it is then considered as part of your estate for inheritance tax, and will be counted by the taxman. If you die within four and seven years of making the gift, there will be a scaled down inheritance tax obligation for your family if they need to pay inheritance tax on your estate. If you survive the gift by seven years it will be considered as outside of your estate.
Source - http://www.mymoneydiva.com/
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