As people age, it's all the more important to grasp the concept of inheritance tax and everything associated with it - understand what it is, what it means and how to avoid it to make sure you leave whatever wealth you may have to your family, instead of lining the taxman's pockets.
It's all too easy to put off learning about this sort of thing, with many people living for today instead of looking to the future. Why would someone young and healthy want to dwell on what will happen when they die, anyway? The answer is, because they are sensible. It's not the most pleasant of subjects to discuss, but it's a very important one.
When someone dies, the government analyses how much their estate is worth - including their property, investment and business. If this value exceeds the inheritance tax threshold, a 40 per cent tax is charged on anything above that threshold. Currently, the threshold, known as the nil-rate band, is £325,000. That means that if someone's estate is equal to or less than £325,000, it's tax-free and all can be left to their beneficiaries. Anything over £325,000 is charged at a rate of 40 per cent - that's almost half the asset value! This just emphasises the importance of planning for your future and making sure that you pay, or your estate pays, as little in inheritance tax as possible.
With regards to your mortgage, when you and/or your spouse die and you still have a mortgage remaining on your property, that needs to be paid off first, thus reducing the value of your estate. If all your wealth is tied up in your home, you may opt, instead, for an equity release scheme, which can help you release some of the value of your assets to pass on to your heirs or to be spent on yourself.
Do remember, though, that your estate will be worth less in the long run. Many people are choosing to keep their mortgage and are switching to interest-only deals - by keeping their mortgage and ensuring their assets are less than the tax threshold, they can give monetary gifts to their loved ones as long as they live more than seven years longer, and thus avoiding inheritance tax - be careful though, because if you live longer than you envisage, the interest payments could engulf the inheritance and be, well, pointless.
There are a number of ways in which you can try to reduce the amount of tax that will have to be paid on your estate. Giving gifts to your family and friends (such as helping your children onto the property ladder) would be an ideal way of spreading your estate before you pass on. Do remember, though, that any monetary gifts are subject to inheritance tax if they are given within seven years of your death. While this sounds morbid, it's just proving the importance of planning early, no matter how grim a prospect it may be.
I am a budding journalist with strong interests in sports and financial services. I hope you enjoyed my article on mortgages. To keep up with Uk mortgage news I use this website who has some of the UK's premier journalists writing for them everyday.For more advice on tracker mortgage click here.
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