How to Avoid Inheritance Tax Legally | Explained
When you take out life insurance, you expect the intended pay-out to reach your beneficiaries in-full – whether it’s your children or your spouse. Unfortunately, that’s not always the case, due to inheritance tax (IHT).
Knowing how to avoid inheritance tax legally could save you and your beneficiaries thousands of pounds – read on to find out how!
What is inheritance tax?
The assets you leave behind when you pass away (i.e., your estate) – including your family home and life insurance policy – are subject to inheritance tax once they exceed the £325,000 inheritance tax threshold, or the ‘IHT Nil Rate Band’ as it is otherwise known.
The IHT threshold may seem out-of-reach to begin with, but once you calculate your estate – life insurance policies, properties, land, valuables, and so on – you may be surprised at its total value.
Anything above the threshold is taxed at the standard 40% IHT rate, meaning that thousands of pounds could be deducted from the life insurance pay-out you leave for your loved ones. But there’s one method of inheritance tax planning that could help you avoid IHT completely.
Avoiding inheritance tax
Avoiding inheritance tax is simple – all you need to do is write your life insurance in trust.
Writing your life insurance in trust means that it is not considered part of the estate and is therefore not subject to inheritance tax, as it legally belongs to the trustee (the person you put in charge of the trust).
This means that your loved ones, the beneficiaries, will receive exactly the amount intended when you initially took out the policy, without any reductions or tax charges. It makes the process a whole lot easier and provides you with peace of mind, as you know exactly how much the premiums you paid will be worth should you pass away during your policy’s term.
Inheritance tax planning may take some time and effort, as you will be required to calculate the value of everything that you would leave behind, but it is undoubtedly worth it. Talk to one of our trained advisers today and we will be happy to help you begin the process of writing a life insurance policy in trust, hassle-free.
Bypass probate and get the pay-out to beneficiaries quicker
When you put life insurance in trust, it also means that your beneficiaries will be able to bypass probate – the process of administrating and distributing assets of the deceased, and essentially ‘proving’ the will in a court of law.
Probate can be a tedious process and one which delays the time it takes for the beneficiaries to receive the estate that they’re entitled to. Payouts from life insurance policies in trust bypass this process and are provided directly to the beneficiaries in line with your wishes in a far more efficient manner.
Cheap life insurance quotes from Quick Quote
So, we have gathered that writing a life insurance policy in trust helps you:
- Avoid inheritance tax
- Provide the pay-out to your beneficiaries without probate
Now that you know exactly how to avoid inheritance tax, you may want to begin planning your next moves in order to secure your loved ones financially in the event of your passing by providing them with the best payout possible (IHT-free!).
Here at Quick Quote, we have a team of friendly, trained advisers that are ready and waiting to help you begin the process of taking out life insurance. Whether you want to put a policy in trust or simply enquire about the benefits of taking out cover, we will be happy to help.
Simply complete the quick quote form and in less than 2 minutes you will have your indicative quote and have taken the first step towards protecting what matters most – to you.