Inheritance protection

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Overview

It's not just the rich and famous who have to think about Inheritance Tax. If you haven't made the right arrangements, your family may have to pay 40% tax on the value of your estate over £325,000 (the nil rate band) on your death.

Your estate consists of the value of your house, savings, investments, personal belongings and any life insurances not written in trust. When you consider that the average UK house prices increased by 40% between 2002 and 2012* you can easily have a large estate quite early on in your life.

*Source: Nationwide, February 2013.

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This information is based on NFU Mutual's understanding of current and proposed tax legislation which is subject to change.

How can you avoid inheritance tax?

Anything you leave to your spouse is normally free of Inheritance Tax. But as soon as it passes to children or anyone else who is not exempt, it could be taxable.

A change on 9th October 2007 could benefit married couples and civil partners. A widow, or widower, can use any portion of the nil rate band that was not used by their spouse. So if their spouse used none of the nil rate band, the survivor would have £650,000 available at present. This change applies even if their spouse died before October 2007.

How would your family foot the bill? Perhaps they'd have to sell the family home or dip into other investments. But the good news is that with careful planning you can reduce or even avoid Inheritance Tax altogether.

Value of estate	Tax liability
Up to £325,000	0%
Over £325,000	40%

Make the most of your inheritance tax exemptions

You can also take advantage of some of the Government exemptions to reduce the amount of Inheritance Tax your loved ones will pay:

Give away up to £3,000 each tax year

This is called the Annual Exemption and you may also be able to utilise any unused allowance from the previous tax year.

Give small gifts of up to £250 to a number of different people

Using your Small Gifts Exemption allowance, you can gift up to £250 to any number of people each tax year.

Give wedding gifts to your children

The Marriage Gifts Exemption allows each parent to give wedding gifts of up to £5,000 to each of their children (grandparents can gift up to £2,500 to each grandchild). You can also gift as much as £1,000 as a wedding gift to anyone else.

Give to charities

Almost all donations to charity are exempt. After April 6th, where an individual leaves 10% of their net estate (after deducting IHT exemptions, reliefs and the nil rate band) to charity, the rate of IHT chargeable will be reduced from 40% to 36%.

If you make regular gifts (including birthday and Christmas presents) out of your after-tax income (not your capital), that do not impact on your normal standard of living, you may be able to avoid Inheritance Tax.

Use a potentially exempt transfer

Making gifts during your lifetime can be a very tax-efficient way of passing on your wealth. If you make a gift to another individual, and it is not covered by any available exemption, it is known as a 'potentially exempt transfer'.

This transfer will be free of inheritance tax if you live for at least seven years after making it. If you die within seven years, the original gift will be included in your estate, but any growth in its value will not be included. If a 'potentially exempt transfer' becomes chargeable when you die within seven years of making it, depending on the size of the gift, taper relief may be available so that only part of the full tax has to be paid on the gift.

Our mortgage assurance

For most of us, the biggest purchase of our life is a home and this usually involves taking out a mortgage with a building society, bank or insurance company. But what would happen should you die before the mortgage is paid off? You would not want to leave your family having to find mortgage repayments at a time when they could be struggling financially without your income to support them.

Our Mortgage Temporary Assurance offers an affordable way of allowing your family to continue to live in the family home without the worry of the mortgage payments to find should the worst happen.

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