Inheritance Tax can cost loved ones hundreds of thousands in the event of your death, yet it is possible to legally avoid huge swathes of it, or possibly pay nothing at all.

Who Pays Inheritance Tax?

Currently, everyone is allowed to leave an estate valued at up to £325,000 without their beneficiaries paying tax on it. The amount is set by the Government and is called the nil-rate band, because it is the amount you pay a “nil-rate” of Inheritance Tax on.

Above that amount, anything you leave behind is subject to tax of 40% (or 36% if you leave at least 10% of your assets to a charity).

What If I Am Married?

When you die, any assets left to your spouse or registered civil partner, provided they are UK-domiciled, are exempt from Inheritance Tax. On top of this, your partner’s Inheritance Tax allowance rises by the amount you did not leave to others, meaning together a couple can currently leave £650,000 tax-free.

And If I Am Not Married?

While transfers of property and other assets between married couples or civil partners do not attract Inheritance Tax, this is not the case for unmarried couples.

If you are not married, but own assets jointly with another person, the situation gets complicated, especially where a residential property is involved. The Inheritance Tax position will depend on whether you and your partner own the property as ‘joint tenants’ or ‘tenants in common’ and whether there is a Will. The need for individual advice is essential so that you can protect your estate and ensure that your wishes are carried out.

So, what should I do?

The first step in protecting your assets from the tax authorities is to get in touch with me. I will be able to provide you with the specific advice for your exact situation.

Asset Protection – In Particular Property

One in every three women and one in every four men are likely to require long term residential care. Fees in care homes vary considerably but can be in the order of £15,000 to £25,000 each year depending on facilities and the area of the country.

If you have assets valued at over a certain level and require residential care, you are responsible for the costs and the Local Authority may obtain an order enabling the sale of assets, including your home to meet the costs.

To be able to protect the asset, it must be owned as ‘tenants in common’ and each owner leaves their share of this in trust for children or other beneficiaries rather than to the other owner.

This means that the survivor never becomes the sole owner of the asset. This will prevent the Local Authority taking all of the assets into consideration for fees if permanent residential care is required. The most that could be taken into account is the survivor’s share of the asset.

There are further issues which may arise such as the surviving spouse remarrying and potentially divorcing, which needs to be considered to ensure that your assets are inherited by those you wanted to and not left to chance.