In our previous blog managing Inheritance Tax (IHT) we looked at how IHT works and what steps you can take to minimise your liability.
However, if you look at the latest government data, it shows the number of people paying IHT is rising year on year. Last year some 41,000 people were liable to IHT which is up from 33,000 people in the previous year. The number in 2018/2019 was 22,000. Recent statistics also show a record intake of £7.1 billion in IHT last year.
Basically, more of us are going to be paying IHT in years to come due to the freezing of thresholds and increasing house prices.
If that is the case, then you need to consider – how would you pay the tax.
When we talk to clients, we know that IHT divides opinion. Some people are content that tax will have to be paid but others would prefer to pass on as much of their Estate as possible. There is also sometimes the worry that will there be sufficient cash to pay the tax or will an asset have to be sold just to pay the tax.
Paying by instalments
HM Revenue & Customs (HMRC) have the facility whereby you can pay your IHT bill in yearly instalments over ten years.
However, this facility only applies to assets that take time to sell such as businesses and houses. Plus, if you decide to pay in instalments there will be interest to pay which can amount to a material sum.
The instalment option is also available to those that would face financial hardship but this up to HMRC whether or not they accept your claim.
For more information visit these pages which break down what type of gift that is covered by this facility.
Bank loans for IHT
Your personal representatives can apply for a loan to pay the IHT by using the assets in the Estate as collateral. But this can be very expensive and proper advice should be taken before you take this step.
Take out insurance to pay IHT
A good solid option is to take out an insurance policy that will cover any IHT liability. You should speak to a financial advisor before doing this and if you don’t have one we can make recommendations. Of course we would first need to estimate your tax liability to ensure you purchase enough cover.
Paying the IHT liabilities is often a cause of stress for your personal representatives, so it makes sense to get your affairs in order beforehand.
Here’s a quick step guide
- Have you got a Will? If not get one drawn up as a Will makes things much simpler. We can recommend professionals who can help to draw up a Will.
If you have a Will when was the last time you reviewed it? If your circumstances have changed then you need to relook at your Will.
- Are you likely to get caught by IHT. Here’s a really good guide to IHT which should help you work this out. We can also do some calculations and calculate an estimated liability. Having an idea of your tax liability helps you plan for the payments of tax.
- If you are likely to get caught, what plans are there for the Estate to pay for the tax liability? Would you be prepared for your personal representatives to sell some assets to pay for the tax liability?
- Would you like to discuss paying your IHT or planning for your IHT?
If so, get in touch. Please email one of our directors at Myers Clark to start the conversation with you. If you are not yet working with us look at how Myers Clark can help you with your taxes