UK inheritance tax is currently a contentious subject among taxpayers. Most of us think that a person who pays all taxes on income during his lifetime rather than the government has no right to levy taxes on that money a second time after the person dies. This is why this type of tax is also known as “Double Tax” as ownership is taxed twice. Because of this double taxation, many people disagreed and petitioned against the inheritance tax so that the government could impose this tax. If someone is in a position to inherit, then that person must know what inheritance tax is and how it is paid.
The heirs must verify whether the tax on the inheritance is imposed under the Inheritance (Provisions for Families and Dependents) Act 1975 and the Inheritance Tax Act 1984. The heir is not required to pay taxes on the inheritance, which was left by the deceased spouse. Everyone can give £325,000 before their heirs pay the inheritance tax, which is 40% on anything above that amount. This is called a ‘zero-rate band’ inheritance tax. If you are married, you can inherit any unused allowance from your spouse or partner. That means that married couples and civil partners can give £650,000.
If the testator is responsible, then know how much tax will be charged. Heirs are required to pay taxes on their share of inheritance. The estate will owe 40% tax on anything above the £325,000 inheritance tax threshold when someone dies (or 36% if someone leaves at least 10% to charity). Addressing it is one of the biggest things you can do, as a few simple actions can save you £100,000.
How can you save paying huge Inheritance Taxes?
The following is a simple and easy to understand guide to avoiding inheritance taxes:
First, select the asset you want to trust. For the most part, Settlers decide to keep a small amount at the start and over time they keep adding more assets. However, you can also make a big contribution at the beginning because death can come at any time.
You must name your guardian. Trustees are those who decide the distribution of the trust assets to the beneficiaries. In many jurisdictions, it is permissible to become your own guardian but you must choose an independent trustee, who is not from your extended and immediate family. If you fail to do so, the trust may be rejected by the court.
To avoid Inheritance taxes you should hire a trust attorney who is experienced and can draft your trust deed. This deed must name the initial assets in the trust, trustee, and beneficiary. You should also clarify the role and powers of the guardian; explain the rules for financial management, verify the decision-making power of the trustee and verify the legislation for trusted asset investments. In the end, the deed must be notarized and signed to form a trust.
Start selling your own assets to your family trust over the years and slowly forgive your debts from the trust by using a notarized and signed paper.
Give something to a friend or family member. A friend or family member who is not your spouse or civil partner, so that you no longer benefit from it. It will not be taken into account when calculating your Inheritance Tax liability when you die.