Ensure your Will maximises Inheritance Tax allowances and protections
What’s On This Page?
Get In Touch
Tax Efficient Wills
Your Will should be as tax-efficient as possible. By taking the right steps, you can ensure that all the allowances to which you are entitled will be applied to your Will.
One way to make a tax-efficient Will is to consult the experienced and expert team at Will Power. We can help you to create a legally valid document that could save you tens of thousands of pounds.
Ian Winterbotham explains further in this podcast.
What is a tax efficient Will?
To put it simply, a tax-efficient Will enables all Inheritance Tax allowances to be claimed by the executors who ensure your wishes are carried out.
The precise type of Will you draw up will depend on your circumstances. If you are a single person with assets of less than £325,000, you will not be liable to pay Inheritance Tax (IHT). That is the level of an individual’s nil-rate band allowance.
However, if you are a couple with joint assets of more than £1million, even if all the allowances are applied your descendants may still be liable to pay IHT at 40 per cent.
If you have children together, you can each bequeath £325,000 to them tax-free – and another £175,000 if you are leaving them the value of your home. For a couple, that adds up to £1million.
Avoiding or minimising IHT
One way to ensure as much of your estate goes to your beneficiaries as possible is to create a Trust in your Will. This is a wise move in the case of a couple with total assets of more than £1million, which might then be liable to IHT.
If your Will stipulates the creation of a Trust, this becomes active after your death – and can carry on for up to 125 years. Your assets can then be passed on down the generations without incurring IHT on a generational basis.
There are some serious pitfalls you need to avoid. For example, do not be tempted to put your home into your children’s names to avoid IHT.
For one thing, if your child gets into financial difficulties, the courts could take your home away and leave you out on the street.
For another, HMRC would know that you still lived in your home having given it away, which is classed as a ‘gift with reservation of benefit’, and your Will could still be liable for IHT.
Other Ways to Make Your Will Tax-Efficient
If your joint assets as a couple are worth more than £1million, you can reduce the value of your estate during your lifetime by making gifts.
One major consideration, however, is the seven-year rule. You can gift as much as you like to your children with no tax – but if you die within seven years, that amount will be included in your estate and subject to IHT on a sliding scale depending on when the gift was given
You can gift up to £3,000 each year within those seven years without incurring tax.
You may also give up to £250 to individuals each tax year – as long as you are not using another allowance on them. Similarly, birthday or Christmas presents from your regular income are exempt from IHT.
If one of your children is getting married, you can gift them £5,000 free of IHT and for a grandchild the limit is £2,500.
By making these gifts, you are able to help out your loved ones while you are alive, while also reducing your family’s potential IHT bill after your death.
Your Next Step
As you can see, there are several steps you can take to ensure your Will is tax-efficient. With the help of our expert consultants at Will Power, you can get the peace of mind that comes from knowing you will pass on as much of your assets as possible.
Contact us now to arrange an initial conversation.
HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.
Tax treatment varies according to individual circumstances and is subject to change.
