Gifts And Inheritance Tax: 7 Year Inheritance Tax Rule UK

An inheritance tax is a tax on the estate (property, money, and possessions) of someone who has passed away. The standard threshold for inheritance tax is £325,000 per individual or £650,000 for couples. Anything above this amount is taxed at 40%. If you have significant assets (e.g., £500,000) and are over the UK inheritance tax threshold, gifting part of these assets can reduce your inheritance tax liability. The 7-year rule inheritance tax is a key component of the UK's inheritance tax system. It allows you to reduce the amount of tax payable on gifts made before your death. However, there's a risk if you die within seven years of making the gift, as a portion of the gift may still be taxed.

Gifting should be a primary strategy in inheritance tax planning, although other tools like insurance and trusts are available. The decision to gift or use other tools like trusts and life insurance depends on your circumstances, including health, financial situation, and estate planning goals. If you're concerned about inheritance tax and want to ensure that your loved ones receive the maximum benefit from your estate, now is the time to act!

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Key Points of the Video:
Inheritance Tax Overview
— The inheritance tax threshold is 40% on estates exceeding £325,000 per individual or £650,000 for a married couple
— This means that if the total value of your estate, including property, savings, and investments, surpasses these thresholds, any amount over will be subject to a 40% tax.

7-Year Inheritance Tax Rule UK
— Gifts made within 3 years of death are taxed at 40%, with a decreasing tax rate for gifts made 3 to 7 years before death. No tax is due on any gifts you give if you live for 7 years after giving them, unless the gift is part of a trust.

Gifting Benefits
— Reducing Taxable Estate: By gifting assets early, you reduce the overall size of your estate, which can help in staying below the inheritance tax threshold.
— Risks to Consider: The primary risk of gifting is the uncertainty of life expectancy. If you pass away within 7 years of making a gift, a portion of the gift may still be taxed.

Comparison with Trusts and Insurance
— While trusts and life insurance are alternatives for managing inheritance tax, they can be complex and costly, whereas gifting is a simpler and often more satisfying option.

Action Steps for Estate Planning:
— Gifting should be part of a comprehensive inheritance tax strategy, and it's recommended to consult a financial adviser to explore the best options for your estate planning.

Reference:
https://www.gov.uk/inheritance-tax/gifts

Video Timestamps:
0:00 : Gift & Inheritance Tax: Is It Better To Be Gifted Or Inherit?
0:21 : Inheritance Tax 7-Year Rule Explained
1:31 : Gifting Benefits
2:46 : Trusts Vs Gifting
3:41 : Life Insurance Vs Gifting
4:43 : How To Plan an Inheritance Tax?
5:11 : Outro & Summary

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