Managing the estate or property of someone after their death can be troublesome especially when you are not familiar with the ways to mitigate tax effects. Amongst the various things to deal with after the death of a loved one is the inheritance tax. Inheritance tax is the tax imposed on the estate of a dead person at the time of its transfer to the legal beneficiaries.
The estate may include different types of assets, real estate, stocks, insurance policies, ownership of a business, cash, and other goods. The purpose of creating such a tax is to assure more equal distribution and transfer of property to the beneficiaries and for the generations to come. People advocating the theory of Inheritance Tax believe levying such taxes is the better option for wealth distribution.
However, in case of incorrect and dubious mention of the facts, Inheritance Tax can make you suspect to the payment of thousands of pounds While not every tip will prove to be beneficial for everyone, but using the tips by first analyzing your situation can help in reducing the cost of Inheritance Tax for you.
Here are the ways you can avoid Inheritance Tax
Make a will for the estate
Making a Will that clearly mentions all about your estate and its transfer is the best way to clear confusion and reduce the impact of Inheritance Tax. Having a will makes certain that your assets are distributed in an efficient and legal manner avoiding any place for confusion or conflicts. A will can reduce or even exempt you from paying Inheritance Tax if your case permits.
Therefore, it is crucial to have a Will in the first place if you think of getting rid of the Inheritance Tax in any way. Make a will and it will benefit your beneficiaries after your death.
Make a trust for your assets
A trust is another useful legal instrument that provides a better structure for the distribution of the assets that you leave after your death. Trusts can be made while you are alive and come into existence after you die for an assured and specified distribution of the assets. Assets included in the trust at the time of your death would not result in or be subjected to the implications of the Capital Gains Tax but they may occur if you are planning to transfer your assets into the trust while you are alive. Trust registration is important and mandatory after the recent money laundering act.
Make gifts to friends or family
If you have excess income, then you can use it to make gifts that can be shown while levying the tax and thus, will aid in lessening the cost of Inheritance Tax. However, the gifts listed whether made to your friends or family can enjoy the Inheritance Tax for only up to seven years, which means gifts that you made before seven years before your death won’t be taken into account to calculate Inheritance Tax. Also, the gifts have to be made out of your current income and in a way that does not impact your standard of living.
Leave some for charity
Charity or making charitable gifts is another way of getting exempted from Inheritance Tax. Leaving 10% of your assets or property to charity will help in reducing the Inheritance Tax up to 4%, which is 36% from 40%. This way you can reduce your Inheritance Tax along with doing a good deed. Also, if the charity is something you have been planning to do for a long time, then this is the best opportunity to have two-sided benefits.
Get a life insurance policy
If you have made a trust for your assets, then buy a life insurance policy. The point behind this is that the proceeds from this can be utilized for writing off the liability of Inheritance Tax. This will also keep your assets protected and they will be transferred to the legal beneficiaries at their actual value. For deciding which insurance policy cove to choose, just try to estimate the inheritance tax you would be paying on the assets and then get a policy that adequately covers that cost.
It is important to prepare yourself in advance to lowering down the impacts of the Inheritance Tax and save yourself from the stress of spending a lot on the Inheritance Tax at the time of estate distribution of a deceased person.
The usual rate for levying Inheritance Tax is about 40% and this can be a lot to pay since the estate oftentimes cost around thousands and millions of dollars. Where the assets are of high-value, the Inheritance Tax could even become unbearable.