How should you manage your Inheritance tax?

While the subject of taxation is always a sensitive one, there is one particular focus that is more controversial than any other.

This is inheritance tax, of course, which has become an increasingly hot-button topic after David Cameron’s pledge to scrap it during the early days of his premiership. Despite this, the Autumn Statement of 2016 revealed that the Treasury is continuing to collect record levels of inheritance tax, amassing a staggering £5 billion in 2015 alone. Pressure is therefore mounting on Philip Hammond to fulfil the Tory promise and scrap inheritance tax, with many claiming that it is an immoral practice that represents the embodiment of double taxation.

This is unlikely at present, however, meaning that individuals must take the initiative and seek out viable ways of managing and ultimately distributing their estate. Here are some tips to help with the accomplishment of this goal:

1. Understand the Importance of Making a Will

While this may seem simple, this is arguably the most effective way of successfully managing your estate.          Creating a binding last will and testament ultimately ensures that your financial plans are executed to the letter once you have passed, allowing you to control your estate even in the event of your death.

Make no mistake; a detailed will creates a clear distribution plan for your estate, and one that is exceptionally difficult for disgruntled parties to contest. As a result, you can ensure that your capital has its desired impact while also minimising the emotional burden shared by your bereaved friends and loved ones.

It is never too early to make a will either, so consider setting your financial plans in stone as soon as you possibly can.

2.Calculate the Amount of Inheritance Tax That Your Beneficiaries Will Have to Pay

Regardless of steps taken by the Conservatives or future governments, inheritance tax is a pivotal part of UK financial law and one that simply cannot be ignored. You must therefore strive to work with this and calculate the precise amount that you are required to pay, while identifying compliant methods of reducing this.

With this in mind, you should probably spend some time working with financial and estate planning firms like Tilney. Firms of this type will work with you to determine precisely how much inheritance tax your beneficiaries will be required to pay, before reviewing the structure of your estate and recommending cost-cutting changes.

This may also allow you to estimate future costs such as long-term care fees, which is a huge consideration in the current financial climate.

3.Gift Portions of Your Estate Over Time

Gifting can also be an excellent way of distributing portions of your estate prior to your death, so long as you operate within existing UK guidelines.

To begin with, you have a basic, £3,000 per annum gift allowance when you are alive, which is commonly referred to as an annual exemption. Through this, you can give away assets (or more likely, cash) to the value of £3,000 each year without incurring inheritance tax.

If you wish to make larger gifts, timing is everything. More specifically, UK law dictates that larger gifts extended more than seven years before your death are free from future inheritance tax. In contrast, those that proffered within seven years of your death will be subjected to basic inheritance tax, so you should be proactive when looking to share parts of your estate ahead of your demise.