‘Effective’ Planning Can Reduce Inheritance Tax Bill

It is traumatic when we lose a loved one but it can be a nightmare to sort through the finances of the deceased. Trying to work out how much goes to whom and what to do with any property is the last thing you need when you are still grieving. In addition, the taxman wants his cut of the pot too in the form of Inheritance Tax (IHT).

A new study from Norwich Union has found that nearly two thirds of respondents had "partial or no understanding" of the inheritance tax threshold (IHT).  Although estate planning is one of the most "complicated" parts of personal finance, confusion can cost people thousands of pounds, according to the company's senior marketing manager.

"IHT is not just for the super rich - many of our customers are mystified by the current system and as a result are not taking action or leaving things too late," he said.

People should be aware that property can push them over the limit. It is, therefore, vital to get a will sorted out as soon as possible. Many financial institutions such as banks and building societies offer a free advice service and only charge a nominal fee to set up a will with them.

IHT is usually paid out on an estate when somebody dies. It is also sometimes payable on trusts or gifts made during someone’s lifetime. Most estates don’t have to pay IHT because they are valued at less than the threshold. This threshold hold is reviewed every year and should be checked to ensure accuracy.

Married couples and registered civil partners can effectively increase the threshold on their estate when the second partner dies to as much as double the single person’s rate. Their executors or personal representatives must transfer the first spouse or civil partner’s unused Inheritance Tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die.

If you are concerned about your estate it could be helpful to talk to an independent financial advisor and find the right package for your individual circumstances.

If you would like to know more about inheritance tax why not ask AnswerBank Business and Finance.