Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

What do I need to know about Inheritance Tax planning?

At Four Wealth Management, we help a lot of clients to reduce their Inheritance Tax liability so they can leave as much of their wealth as possible to their loved ones.

The sooner you start Inheritance Tax Planning, the more options you have available to you and you have a better chance of reducing your overall liability.

An increasing number of people have an Inheritance Tax liability due to rising house prices.

Here are some common questions that our Financial Advisers are asked about Inheritance Tax.

What is the Inheritance Tax threshold for 2021?

For the 2021/22 tax year, no Inheritance Tax is generally paid on assets up to £325,000 per person. The allowance can be passed onto a spouse so a married couple have a combined tax-free allowance of £650,000. Anything over the allowance is taxed at 40%.

What is the residence nil rate band?

The residence nil rate band was introduced in 2017/18 tax year. This allowance means that if your main residential home is passed onto a direct decedent such as a child, grandchild or step-child free of Inheritance Tax up to the allowance. In the 2021/22 tax year this allowance is £175,000 per person. This means that the total potential exemption from Inheritance Tax is £500,000 per person or £1.000,000 per couple.

Do you pay inheritance tax on jointly owned property? 

If you inherit property or assets that you jointly owned with someone who died, you may have to pay Inheritance Tax on the whole estate if it is over the allowance of £325,000. The executors of the Will should pay the Inheritance Tax from assets in the estate.

Does equity release reduce inheritance tax?

If most of your assets are tied up in property, you may not be able to take full advantage of cash gifting in your lifetime.

Equity release is borrowing money against the value of your home or selling part of your home at a reduced market rate, but you can live there for the rest of your life.

The money you release from the property can be passed onto your family or spent. If you live for seven years after the gift is made, there will be no Inheritance Tax liability.

Equity release is not suitable for everyone, to find out more about equity release, please contact one of our Financial Advisers.*

How much money can you gift free from Inheritance Tax?

In the 2021/22 tax year you can take advantage of annual exemption gifting which means you can give away £3,000 worth of gifts each tax year without paying Inheritance Tax.

You can also gift as many gifts of up to £250 per person each tax year if you have not utilised another exception to that person.

Each tax year you can also gift wedding/civil ceremony gifts of up to £1,000 per person or £2,500 for a grandchild and £5,000 for a child. Normal gifts from your income such as birthday presents are also exempt.

Find out more about Inheritance Tax and passing wealth onto loved ones

Does my partner pay Inheritance Tax if I leave them my house?

If you pass your home to your spouse or civil partner when you die, there is no Inheritance Tax liability. However, if you leave the house to another family member in your Will, the house value will contribute to the value of your estate.

What tax is due if I give away my home before I die?

If you gift your home to a family member such as a child or grandchild and live for seven years after making the gift, there will be no Inheritance Tax to pay.

If you continue to live in the house after gifting it, you will need to pay rent to the new owner, pay the bills and live there for at least seven years for the gift to be exempt from Inheritance Tax.

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What is the seven year rule for Inheritance Tax?

If you remain alive for seven years after gifting money or assets to friends or family, the gift will be exempt from Inheritance Tax. Gifts must be outright and you must no longer benefit from them.

In the 2021/22 tax year, there is a £3,000 annual allowance for gifts which are free from Inheritance Tax, regardless of when you die, provided you haven’t used a different allowance to gift money to the same recipient.

Book a no-obligation review of your financial situation and find out ways you can reduce Inheritance Tax, contact Four Wealth Management today.

Do I have to pay taxes on money gifted to me?

You do not have to pay income tax on inherited gifts.

You may be liable to pay Inheritance Tax if you were gifted more than the annual exemption and the person who gave you the gift died within seven years.

Does inherited money count as income?

Inherited money or assets do not count as income and you do not need to pay Income Tax. However, you do need to pay Income Tax on profit you later earn from your Inheritance such as dividends from shares or rental income from a property.

Start Inheritance Tax Planning today

The rules around Inheritance Tax are complex and it can be hard to keep up with legislation changes. At Four Wealth Management, your Financial Adviser will let you know of any changes in rules that may affect you and how to take advantage of allowances to reduce your Inheritance Tax liability.

We offer a no-obligation review of your financial situation. Your Financial Adviser will then assess your portfolio and make recommendations of how they can help you to reorganise your finances and save tax.

Contact us to arrange a no-obligation review of your finances today

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

*To understand the features and risks associated with such products, please ask us for a personalised illustration.

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If you have any queries or would like to arrange a face to face meeting with an adviser for a no obligation review of your personal finances, simply book a call back using the form below. Alternatively, you can call us on 0117 973 0500.

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What do I need to know about Inheritance Tax planning?
FourWealth Management