If you are a British tax resident, you might be interested in knowing more about the inheritance tax and the different ways to avoid probate & tax.
Inheritance Tax is usually paid on an estate when somebody dies. It’s also payable on trusts or gifts made during someone’s lifetime. Nevertheless, most states do not have to pay Inheritance Tax because they are valued at less than the threshold (£ 325,000 in 2012-13). The tax is payable at 40% on the amount over this threshold or 36% if the qualifying for a reduced rate is a result of a charitable donation.
How to avoid inheritance tax?
By splitting up your estate in your will, you can ensure your loved ones by an amount under the threshold.
You can give up to € 3,000 each year. However, you need to survive the donation by 7 years, or the recipient will be taxed.
You can use a trust
You can change your home : Any other tax, UK Inheritance Tax (IHT) follows you around the world, regardless of where you may reside. That’s because it’s based on your home, not residence. So you need to change your home in order to shrug off IHT.
Charities: Leave your assets to charity: no UK IHT. Note that all registered charities can qualify.
Disabled children: Transfers into a trust for disabled children from UK IHT. The disability must meet certain conditions. You can be the Trustee so that you are in control of the funds with provisions to supplement the following your death.
QNUPS: Transfers into a Qualifying Non-UK Pension Scheme is free from UK IHT, and the fund can pass IHT free on your death. Take care advice on how to set this up. The QNUPS can give the income settler – no need to be an excluded beneficiary. So you can have access to the funds, yet it is outside of your estate for UK IHT. There is no seven year wait period. However, there is some anti-avoidance legislation which needs to be reviewed to ensure that you do not fall foul.
Increased threshold for married couples and civil partners:
Since October 2007, married couples and registered civil partners can effectively increase the threshold on their property when the second partner dies – to as much as £ 650,000 in 2012-13. Their executors or personal representatives must transfer the first spouse or civil partner’s inheritance tax threshold or ‘nil rate band’ to the second spouse or civil partner when they die.
At some point in American history, wealthy families controlled by names such as Carnegie, Rockefeller, and Vanderbilt controlled large private wealth. When a leading Vanderbilt died, a younger Vanderbilt would immediately inherit his home and all assets within. The federal and state governments could only tax wherever the estate chose to liquidate. In an effort to create a populist ‘s share of the wealth policy, a progressive Congress decided to charge a new tax on anyone who inherited large property or other assets through a legal will. Thus the first inheritance tax was born.
In the United States, a state government collects an inheritance tax while the federal government charges a property tax. Both work on roughly the same principle. When a person is named in a legal will as a beneficiary of a death estate, he or she may be liable for an inheritance tax to the state. It is not the same as the taxes levied on the property, but simply because of the right to take ownership. The inherited property is evaluated and, depending on its value and heir to the deceased, an inheritance tax may or may not be charged.
This is where the inheritance tax laws become very unclear and controversial. Currently, an inheritance tax has more exemptions and exemptions than most other tax combined laws. First of all, the value of the property or monetary assets must exceed $ 1.5 million to qualify for inheritance tax. This eliminates most of the inherited property immediately. ‘Class A’ relatives, which include spouses, children, parents, and grandchildren, are also exempt from an inheritance tax. The worst-case scenario would be for a favorite cousin to inherit his uncle’s US $ 35,000 mansion in the Hamptons. The cousin would be subject to up to 50% inheritance tax on the property, which would mean an immediate debt of US $ 1 million or more.
Some refer to an inheritance tax as a dead tax, but it is not a precise description. The taxes levied after a property sale for the value of the goods sold – this would be considered a form of the death tax. An inheritance tax is based on the value of an asset that may or may not is sold. The original intention of inheritance tax/property tax law was ultimate to reduce the wealth of robber barons and extremely rich private landowners.
Only a select number of citizens are affected by an inheritance tax, but it is still a highly charged political issue. Other nations have eliminated or greatly restricted their own versions of the inheritance tax, but the US government continues to keep some kind of property tax on the books. Abolition of ‘dead treasure’ can help many of the nation’s richest citizens remain rich, but the general population has little to fear from an inheritance tax law.