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Inheritance tax is particularly unpopular says Robert Jenrick
Inheritance tax is chargeable on the estate - property, money and possessions - of someone who has passed away. While it is applicable to estates above a certain threshold, it is likely all Britons will need to report an estate to Her Majesty’s Revenue and Customs (HMRC). As the standard rate of Inheritance Tax is 40 percent and charged on values above the threshold, many will be looking for ways to reduce a bill for their loved ones.
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This can be achieved through certain reliefs and exemptions, but must be carried out carefully.
Express.co.uk spoke to Neil Rushton, Chartered Financial Planner at Old Mill, about Inheritance Tax.
Mr Rushton explained how reliefs and exemptions may be able to help millions of Britons, but how there are key issues to bear in mind.
He said: “Quite a lot of reliefs and exemptions are quite small, and some will be looking for more protection.
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Inheritance Tax UK: our bill can be reduced through reliefs - but there is a key warning to note (Image: Getty)
“One exemption which could make a real difference is gifts out of normal expenditure. If you have surplus income you can gift this while you are alive and this falls out of your estate straight away.
“If you had an elderly relative that had a good pension, and they’re only spending a small amount of this, they could have a surplus which is just building up in the estate - this can increase a tax bill.
“Alternatively, if the lady or gentleman engaged with cash flow planning, then we could say they don’t need the surplus amount and can gift it straight away to avoid the tax.”
However, while Inheritance Tax is a consideration for when someone passes away, it is likely the issue needs to be thought about sooner than some would account for.
Lowering a tax bill often involves taking action ahead of time to ensure one’s affairs are in order.
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Mr Rushton continued: “With reliefs and exemptions, there is one key warning. You have to be really on top of this when recording it for HMRC.
“The executors of your will would need to demonstrate that this was surplus income, and potentially demonstrate other things when it comes to your estate.
“This is all about being really on top of your record keeping, as the more evidence you have the better.
“We would encourage our clients when looking at Inheritance Tax to look at evidence keeping throughout their lifetime.”
Inheritance Tax UK: Income Tax is another tax which Britons will have to meet (Image: EXPRESS)
Mr Rushton therefore explained the checklist of actions Britons can make note of.
He added: “Each year, keep your bank statements to show that the money that is coming in isn’t being spent.
“Record - even if it just writing down - the gifts you are giving and who they are going to. In fact, this is one of the most important elements of Inheritance Tax as a whole.
“Make sure you keep an accurate record, as it is very difficult for executors to claim reliefs and exemptions if the records aren’t there to be able to refer to, when you pass away.
“If your estate comes under investigation by HMRC, which some will do, then you really aren’t doing your executors any favours by failing to keep records.
“You should always give people the chance to defend your estate, so take action on the matter.”
Mr Rushton acknowledged the ongoing COVID-19 pandemic has given many Britons the time to think about their estate.
While Inheritance Tax might be a topic many shy away from, early engagement is often considered the key to success.
Many people have taken the opportunity to update their Last Will and Testament, or to lay out plans for their family in greater detail.
He concluded: “Inheritance Tax planning and thinking ahead will give you the chance to take care of your family in death, as well as in life.
“Who wouldn’t want to make sure their children and loved ones are amply provided for?”