October 05, 2021
Accountants now have a very diversified role as compared to the previous conception people had about them i.e., that an accountant is supposed to deal solely with a business’s accounts. However, an accountant now not only is supposed to function as a tax advisor as well but should also be able to offer employment advice if handling your payroll tasks at the same time. Inheritance tax is a costly affair when not handled correctly, but this doesn’t mean that they aren’t ways to avoid the same. However, if you have a financial advisor to guide you then you will definitely be savvier in your financial decisions which translates immediately into paying less tax while also paying the right amount of tax.
What actually is Inheritance tax?
This is the tax that is levied on the estate or property of a person who passed away. When defining property here it would imply all money as well as possessions. The value of assets and the deductions of liabilities or debts is first done and whatever is left is termed to be the ‘estate’ upon which inheritance tax is attracted.
What are the assets that are deemed to be within the estate?
Whatever has value has to be evaluated and thus, included in the estate as inheritance tax would have to be considered. In case the particular asset is a part of a joint ownership then only your share will be included into the estate. The value of the asset is linked to be the value of the same at the particular date of the demise. Such assets would include bank accounts, property, vehicles, investments, antiques, shares, personal items, jewellery, insurance (not trust based) and ISAs. Gifts that have been made within the past 7 years too would be considered so if you are uncertain about what to include or not it is better to ask a tax accountant.
Which assets need not be considered in the estate?
There are assets that would not be a part of the estate and thus, not part of your inheritance tax worries. Included in this list would be life insurance held in trusts. Pension plans as well as trust in general.
Important to note is that the outstanding liabilities would be cleared from the present assets and so the inheritance tax value too will go down. Interestingly you can deduct funeral expenses as well from the estate of the deceased.
Pointers to keep in mind for a lower Inheritance tax bill
While engaging tax services would be a more efficient option in this case, it always pays to be a bit self-aware as well. Thus, the following are a few points that should help ensure a lower inheritance tax bill.
Don’t forget the 7-year rule: If the death of the gift giver happens within a period of 7 years of the date of the gift, then automatically the value of the same will be added to the inheritance tax bill. However, if you die 7 years later then there is no inheritance tax to worry about.
The ‘Will’ to the rescue: By making a will you will not only be certain who receives what but also be able to distribute the assets bequeathed in the most tax-efficient manner. If you don’t have a will the government will work at their discretion which might not exactly be tax-friendly to your successors. Assets held by a trust would be inheritance tax free!
Liberating life-insurance: if you do have a life insurance policy then place it in trust as otherwise the pay out would attract inheritance tax.
Pen the pension: Ensure to have a pension in place as this is considered to be the most effective as well as simplest method to avoid inheritance tax.
If you find you have queries regarding the best way to handle your finances, feel free to connect to our experts. Doshi Accountants is always ready to assist.