Too many people succumb to the top 3 classic tax pitfalls by failing to link their wills with tax planning. And this results in payment of inheritance tax at 40% when it could be entirely avoided.
The current low levels of will making are already problematic, as the latest Which survey found, with less than 50% of people in the UK having one in place. And of those that do, RJP’s own experience working with individuals suggests that more than 90% are unaware of the inheritance tax implications of their estate.
By far the most common mistake is not properly arranging to remove any life insurance premiums from an Estate. Just imagine, you pay premiums all your life to ensure your loved ones are well cared for and then, at the worst possible time, they are liable to a 40% tax bill on any payouts which could have been entirely avoided with some minimal tax planning.
According to my experience, the top 3 inheritance tax mistakes are:
- 40% tax loss on life insurance payouts
- Not knowing business assets can be exempt from tax through certain allowances, and can be effectively passed down a generation
- Not using the lifetime gift allowance properly.
Many people are put off by the thought of having to take tax advice separately because it has already been an ordeal to write a will or because they think it will be expensive. Others simply don’t know their tax liabilities and think this is just something the very wealthy need to worry about. Really the best option is to find a solicitor offering a joined up tax and legal service as a package. We regularly see clients where we can reduce their inheritance tax exposure by at least 50% with quite simple planning.
Our advice is that people need to ask themselves three basic questions:
- What is the value of my estate – including savings, property, insurance premiums, family business or any other assets?
- What will the inheritance tax bill be on my estate?
- How much of this bill can I avoid with proper planning?
Find out more information from RJP’s website.