With more and more people each year passing assets and money to friends and family, its important to know that passing on items with monetary value in the wrong way can incur higher taxes if not done the most tax efficient way.

The individual circumstances for each person are unique and as such you should always seek expert tax advice from an expert like Tax Affinity Accountants - considered one of the Industry leader's with regards to their tax and accounting knowledge and experience. However we have also listed the basic rules below as a guide:

1. Inheritance tax (IHT) is on your entire estate value - ie all the property, money, cars, antiques, stock, etc.
2. Each person has a £325,000 inheritance tax allowance, even if your entire estate is below this total value you still need to declare it to HMRC.
3. Inheritance tax rate is a whopping 40% so its important to get it done right.
4. The inheritence tax rate can go down to 36% if you leave 10% or more of your estate to a charity.
5. Gifts of money to friends and family can still be applicable to inheritance tax as only £3000 per annum is exempt.
6. You can pass your home, to your spouse and there will be no inheritance tax. If to children then the threshold of tax free allowance goes up to £450,000.
7. There is a 7 year rule, if you pass on something and live 7 years from that date then there is no inheritance tax (IHT). If you want to pass on your home but continue to live there then this is different and you should seek professional support and advice.
8. If you are domociled outside the UK then foriegn income and assets are not taxed. However UK assets will still be applicable. HMRC can still treat you as domociled in the UK if you have lived last 15 of 20 years in UK and had a permanent home in the UK within last 3 years of your life.
9. There are many other tax issues and allowances that can make a big difference and as mentioned above it is important to seek professional tax advice from an expert like Tax Affinity Accountants - considered one of the Industry leader's with regards to their tax and accounting knowledge and experience.
   

By Anni Khan at Tax Affinity Accountants

Tax Affinity Accountants are experts in Tax and Accountancy. With branches in Surbiton , Worcester Park , Kingston upon Thames , Cheam and Epsom they are considered in the Industry to be expert accountants and tax advisors for small businesses. Helping and supporting business throughout the UK, they regularly help clients grow their business providing tailored advice and support.

For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.

Saving Inheritance tax

Inheritance tax can be a tricky issue to deal with for most people but it is generally considered a “voluntary tax” as good tax planning can greatly reduce your inheritance tax liability or erase it completely. Assets exceeding the current inheritance tax threshold of £325,000 (for tax year 13/14) are taxed at 40%. That’s basically half of your excess assets going straight to the government and not to your loved ones. This is why inheritance tax can be extremely costly for those who have not done sufficient planning. Fortunately, there are many exemptions and allowances to utilise which would significantly reduce the amount of inheritance tax you have to pay. Here are a few things to consider that can help you save some inheritance tax:-

Make a Will

Making a will allows you to know that your estate is divided exactly as you want it to be when you die. In the absence of a will, people that you wish to benefit from your estate such as an unmarried partner may not be entitled to any share in the event of intestacy.

What is a gift?

A gift is something of value given unconditionally to someone without any reservations. The biggest asset that most people are in possession of is their house. However, giving away your house yet trying to live in it may allow HMRC to invalidate the gift as genuine and apply tax on it.

Give away sooner

Majority of gifts you make are classified as “potentially exempt transfers”.  If you survive more than seven years after making the gift, no inheritance tax is due on that gift. The amount of tax can be reduced depending on how long you lived after making the gift due to taper relief. Gifts made less than three years before death have no reduction in tax. If the gift was made three to four years before death then tax is reduced by 20%. This increases by 20% for every extra year the donor lives up to seven years where the whole amount is exempt. Therefore it can help relief some financial burden on your death estate if you make gifts sooner rather than later.

Allowances to take advantage of

You can give away gifts worth up to £3,000 in total per person every tax year and these gifts will be exempt from inheritance tax when you pass away. Any unused part of this annual allowance can be carried forward to the following year, but if you don’t use it in that year, the carried-over exemption expires. You can also give up to £5,000 to your children when they marry as a wedding gift. Grandparents can give up to £2,500 and others up to £1,000.

Regular Gifting

Regular gifting can dramatically reduce your inheritance tax bill as long as they meet the following criteria: they must be from your income, they must be regular and they must not decrease the standard of living of the donor.

Be generous on birthdays

Gifts under £250 to any recipient per tax year are exempt from inheritance tax. This means that it might be worth giving your boy a big birthday present even if he’s been naughty as it helps reduce the tax bill.

Gifts to charities and political parties are tax-free

It’s good to know that any donations you make to charities or political parties are inheritance tax free at least.

Getting Tax Advice

While it is generally more economical for you to do things by yourself, if you have sizeable assets then seeking professional tax advice is well worth your money. You may end up paying a few hundred pounds to potentially save over hundreds of thousands of pounds. I’m no bargain hunter but that sounds like a good deal to me.

By Wilson Law at Tax Affinity Accountants

Tax Affinity Accountants are experts in Tax and Accountancy. Based in Kingston upon Thames they are considered in the Finance Industry to be the experts in all types of Tax including Inhertance Tax. Helping and supporting business and individual throughout the UK, they regularly help people with their Inhertance tax issues.

For more information visit www.taxaffinity.com. To read more interesting articles like this visit www.taxaffinity.com/blog. Please feel free to comment and share this with your friends.