Tax planning involves looking into a financial position from a tax point of view. This is aimed at reducing the tax burden and improving tax efficiency. Estate tax and inheritance tax are sometimes taken to mean the same thing but they differ. For estate tax, the net value of all the assets owned by a decedent at the date of death is considered and any outstanding tax bill transferred to the estate. Inheritance tax involves accruing from the property inherited from a deceased person after considering any tax exemptions. Planning for estate and inheritance taxes can be challenging especially if there are many assets involved.
The main source of government revenue is tax. The UK government has consistently focused on estate and inheritance tax planning to increase its revenue and hence achieve economic growth. The following are five major benefits of doing this:
It reduces the amount of tax payable by the citizens: Estate and inheritance tax planning in the UK is beneficial for small and large scale businesses. When there is a proper plan, businesses are likely to lower the amount of taxable income and reduce the tax rate.
It increases savings and disposable income: Many people prefer to have a good succession plan such that the beneficiaries will not be left being harassed by the taxman. To reduce the inheritance tax bill, one may opt to give money to family, charitable institutions or political parties when they are still alive. The beneficiaries will, therefore, increase their savings.
It ensures that the citizens interact less with the tax authorities: It is important to follow the rules and regulations set up by government. If citizens comply with the law by paying the taxes due, the property beneficiaries will not need to interact with the government a lot after a beneficiary passes away.
There is a fair distribution of income and wealth among the citizens: The estate and inheritance taxes are imposed fairly and therefore the government ensures equality. All citizens are required to pay estate and inheritance tax at a minimum rate of 40% of the value of the assets, net of reliefs and exemptions.
This will preserve the value of the estate: When a citizen abides by tax law, this will minimize the possibilities of penalties and fines which may be transferred to beneficiaries after death. One may not want their property to be undervalued due to mere negligence.
Assets left behind by a deceased person can go a long way in providing financial help to those who are left behind. This can be well achieved if the citizens adhere to simple tax rules and regulations that have been set by the UK government regarding tax payments. Estate and inheritance tax planning in the UK is beneficial not only to the government but also to the citizens. Planning for ones demise is essential and everyone should be aware of this since assets are always transferable from generation to generation no matter what.