Poor Inheritance Tax Planning Costing Britons Millions
UK taxpayers will waste £448 million this year due to poor inheritance tax planning when it comes to their life insurance policies, according to Unbiased.co.uk’s annual Tax Action Report
Under current tax rules, life insurance policies are usually free of personal liability, however in certain circumstances your payout may be subject to inheritance tax. In order to avoid this, individuals taking out life protection specifically to provide for their heirs need to make an important decision before signing on the dotted line.
Current tax rules mean that life insurance policies are generally from from personal liability but in certain cases the insurance payout could be subject to inheritance tax. In order to avoid this, individuals taking out life protection specifically to provide for their heirs need to make an important decision before signing on the dotted line.
They can either decide to leave the payout to beneficiaries directly, or alternatively put these policies ‘under trust’, thereby removing the asset from the estate. The former route could reduce a £100,000 life insurance payout by as much as £40,000 if an individual’s estate is worth more than £325,000, the current inheritance tax-threshold for individuals.
Karen Barrett, chief executive at unbiased.co.uk commented:
“Ensuring your life insurance payout no longer forms part of the estate is one of the simplest and most effective ways of avoiding ‘death tax’ wastage. It also reduces the legal loop holes which beneficiaries are usually faced with thereby making it both quicker and easier to distribute the money to the right people.”
Unbiased.co.uk’s annual Tax Action campaign aims to educate the 85% of Brits who have done nothing to reduce the amount of tax they pay in the past 12 months and the 27% who claim they do not know how to go about being more tax efficient. It also endeavours to help consumers think sensibly about their tax liabilities and take steps to avoid unnecessary tax payments.”
“Our 2012 Tax Action Report reveals that huge sums are being paid unnecessarily in inheritance tax every year because of poor tax planning, particularly when it come to looking at life insurance policies. People spend their lives providing for their loved ones, yet their ‘lack of action’ when it comes to planning their affairs for after they have gone could lead to a hefty inheritance tax bill, not to mention additional stress for the family and potential delay in distributing assets.”
“If you think you could benefit from putting your life insurance ‘under trust’ to avoid a tax raid on your inheritance, visit an independent financial adviser. Seeking professional advice will help you ensure that your financial arrangements are as tax efficient as possible.”