The main principle of legacy planning is that you’re providing for the people who are important to you, and the challenge is to do so in an efficient way.
It’s something we should all be thinking about, and ought to be a core part of your wealth plan.
UK families have applied for almost 32,000 inheritance tax reclaims in the past six years.
New figures obtained by NFU Mutual as part of a freedom of information request show the scale of inheritance tax overpayments in recent years.
Inheritance tax is assessed on the value of a person’s estate on the date of death, and the tax must normally be paid within six months.
However, if the price of property or shares has fallen when the executors sell the assets, they can reclaim overpaid tax from HM Revenue and Customs (HMRC).
Obtaining this refund on overpaid inheritance tax requires a manual application, as there is no automatic trigger for the refund.
Refunds on overpaid inheritance tax are available if executors sell property within four years of death or sell shares or other qualifying investments within 12 months of death.
Sean McCann, Chartered Financial Planner at NFU Mutual, said:
“A large inheritance tax bill can be a nasty shock for grieving families. These figures show that more and more people are waking up to the possibility that they could reclaim overpaid inheritance tax.
“Considering the buoyant housing market, it’s surprising to see more than 22,000 reclaims have been made on the sale of property or land.
“In some cases, this will have been a result of property being overvalued on the inheritance tax return or because of deterioration of the property between the death and subsequent sale.
“There have also been nearly 10,000 reclaims made following a fall in shares or investment values.
“During times of market volatility, it’s important families check whether they have overpaid inheritance tax. In some circumstances, reclaims can amount to thousands of pounds.”
With inheritance tax expected to raise £37 billion for the Treasury over the next five years, increasing £10 billion compared to the past five years, getting your tax planning right is essential.
Families should continue working with a financial planner as they complete the probate process to understand whether they have paid the correct amount of inheritance tax and whether any refund for overpaid tax is available.
Because qualifying investments that have increased in value will be offset against any that fell in value when sold in the 12 months following death, it is the overall calculation of asset prices that matters for any refund calculations.
Sensible tax planning in circumstances where some qualifying investments have increased in value can include passing the assets directly to beneficiaries and selling only those that have fallen in value.
Always speak to an experienced and qualified financial planner regarding inheritance tax planning.
If, you’re thinking of passing on your wealth, it’s essential that a strategy is defined to make sure that you are able to live the life that’s important to you.
You can read more about legacy planning, the six wise financial strategies and how to implement each in your life in my book ‘Purposeful Wealth’, now available in hardback.