Things You Need To Know About Inheritance Tax & Some Ways To Reduce It

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Inheritance tax is a tax that you have to spend when you pass away which comes out of the financial estate that you leave behind. You only pay it over a certain threshold. The good thing about inheritance tax is that it can be greatly reduced if you think about it ahead of time and prepare your financial affairs so that you end up paying much less.

So what can you do to lessen your inheritance tax bill? Well a major way of reducing this bill is available to you if you have a spouse. If you have a spouse after that anything you leave to them is inheritance tax free regardless of how much you leave them. If you have children, then you may want to give them some of your hard earned money too, in which case you could leave them an amount up to your inheritance tax allocation and leave the rest to your spouse which would mean you will still not pay any of this tax. Then in the future when your spouse dies he or she can leave an additional amount equivalent to their inheritance tax allocation to your children meaning that your children would have received double the amount of inheritance (free of tax that is) than if the all that money had been passed on to them when you died.

Another way to reduce it is to present some of your hard earned money whilst you are alive to the people you wish to benefit from your estate. Bear in mind although that this is only a good idea if the person you are gifting your money to does not possess inheritance tax issues themselves. The other thing to think about before gifting some of your hard earned money is the effect this might possess on the person receiving the money. For instance if you leave a big sum of money to a young person this may discourage them from building wealth of their own.

If you are not happy to do any of the above options then you could still prepare for your inheritance tax bill by taking out a life insurance policy adequate to cover it when you pass away.

Hopefully this article will encourage you to think about and make the suitable inheritance tax planning plans for your life so that you can make sure your family and friends receive the most possible from your estate instead of giving it to the taxman.

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