Archive for the ‘Personal Finance’ Category
UK Inheritance Tax – The Basics
Accountants in Manchester – Understanding Inheritance Tax
Whether one is a chipper young thing still living with a belief in their immortality, or a more mature individual looking to the winter of their years, considering what will happen once we’ve gone is never a pleasant thing. Most of us will leave any planning that’s needed right until the very last moment, simply so that we don’t have to think about the whole business of death.
Unfortunately when it comes to some things such tax, not planning can waste a lot of money that could have been saved. In the UK we are subject to many different taxes, some attached to our working lives, some to our shopping trips and one in particular attached to our deaths.
Inheritance Tax comes into play when someone dies and their ‘estate’ is valued as being worth over the threshold set by the Chancellor (for 2010-11 this was £325,000). Someone’s ‘estate’ comprises of any cash in bank accounts, investments, property and businesses, and so even a moderately well-off business owner’s estate could be effected. When your estate is valued over the threshold set, Inheritance Tax is payable at forty per cent on the amount over the threshold.
Gifts and trusts made during a person’s lifetime are also subject to the tax, unless made at least seven years before they die, and so it is not possible to avoid the tax by simply giving everything away prior to death (unless of course you are happy to live without your cash for at least seven years in order to benefit your heirs!) There are ways however that gifting can lower your Inheritance Tax bill, if it is done within HMRC’s rules, so it is worth sitting down with an accountant to see what is possible.
Even if an estate is valued over the threshold, there are situations when Inheritance Tax does not have to be paid for instance:
When an estate goes to a spouses and/or civil partner it is usually exempt from Inheritance Tax, as are wedding gifts to others, although it is important to note that any wedding gift given must be genuine and not for profit.
The tax is also not usually payable on gifts bequeathed to UK registered charities, and if the deceased owned woodland or National Heritage property there is usually some tax relief available.
It is obviously important that you make a will, to prevent things happening to your estate that you had not intended, but before you do, it is important to get some good professional tax advice. If your estate is likely to exceed the threshold set by the Chancellor, sit down with your accountant and discuss your options, there are ways to lower potential Inheritance Tax bills after you’ve gone that stay within the rules, but you really do need a professional to explore these for you.
Once your accountant has given you the options and you have made your decisions, sit down with your legal advisor to put everything in a will. Forcing yourself to face the subject of your estate after your death, could save your relatives and other beneficiaries thousands of wasted pounds.
3 Simple Personal Finance Tips
Accountants in Manchester – Personal Finance Tips
There are many do’s and don’ts when it comes to managing your personal finances. However, outlined below are 3 simple tips to help you on the way.
Budget: Identify ALL your expenses and review your budget on a regular basis:
To manage your finances you will need to prepare a household budget detailing what you receive and spend out each month as a family unit. The income less the expenditure will represent how much money you have left over each month. Many individuals carry out this exercise but miss out some crucial expenses by accident. This in turn gives them a false impression of what their net income/ deficit position is. Common expenses that are missed out are car insurance/car tax, average monthly socialising expenditure, tax payments, average monthly holiday expenditure and some regular cash payments. Once you have made out your household budget, it is crucial that you review it on a regular basis and compare it to your actual monthly expenditure. If you are spending or receiving more than you anticipated you will need to update the budget accordingly.
Pay yourself first:
One of the biggest mistakes families make when it comes to budgeting is to take their income and spend it until there’s nothing left. Obviously, this isn’t budgeting. The real intention of budgeting is to find those areas where cuts in spending can be made. The idea is to control your impulses. However, this is much easier said than done. The best way around this problem is to have an amount immediately deducted from your pay, and put into another account. Over time you won’t even notice it’s gone. Paying yourself first can be used to contribute to your retirement plan and emergency fund. It doesn’t matter how much you start with, any amount is greater than nothing. Start with a small amount, and after several weeks you can gradually start to increase it. You’ll likely wonder why it took so long to get started.
- Have an amount immediately deducted from your pay.
- Start with any amount and increase it gradually over time.
Pay for things in cash or from your bank account if you can
Rather than using your credit card, where you can, try to pay for as many items with cash or from your bank account. Therefore, you will only be spending what you have. If you have a bank overdraft do not be tempted to run up the balance, as it will still have to be paid back eventually and you will have to pay interest.