Inheritance Tax: Leaving money to your pet may reduce your IHT bill – key steps to take
HMRC discuss rules on hourly pay and back pay
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
According to research carried out by life insurance provider DeadHappy, the British public leave on average £60,000 to their pets in their wills.
Under HMRC’s rules, pets are considered to be personal property, unless they are a working animal, in which case they would be a business asset.
Due to their inability to manage an estate or open a bank account, it is not possible to leave money directly to a pet.
However, taxpayers do have the option of setting up a pet trust to care for their four-legged loved ones after their death and save money on their IHT bill.
IHT is known as tax on someone’s estate, which includes property, money and possessions, after they have passed away.
It is charged on estates valued higher than £325,000 where a person has died and is passing on assets to beneficiaries.
Usually, it is levied at 40 percent on parts of the estate which are valued above this particular threshold, however this bill can be reduced through the means of a trust.
UK law does not commonly allow for trusts to be created when there are no beneficiaries to enforce them.
However, there are exceptions for trusts which are created with the purpose of supporting the care and maintenance of animals.
These trusts are referred to as a “trust of imperfect obligation” due to the object of the trust, the deceased’s pet, being unable to bring proceedings to query its performance.
Currently, the law requires that this specific trust is limited to a time period of 21 years.
If there is any possibility that the pet will live past this timeframe, the trust will be found to be unsuitable.
Trustees must be assigned to run the trust, ideally people who can manage the funds responsibly.
ATM users told to watch out as new way scammers can steal credit cards is uncovered [INSIGHT]
PIP assessments set to reduce as Boris Johnson shares new ‘National Disability Strategy’ [ANALYSIS]
Pension age hike ahead – but a loophole could mean some Britons can retire at age 55 [INSIGHT]
Furthermore, beneficiaries need to be named to inherit the trust assets after the pet has passed away.
When setting up a discretionary trust, taxpayers pay 20 percent IHT on the value of the asset that is not covered by their personal allowance.
Going forward, all assets in the trust need to be revalued every decade, at which point a six percent charge is levied on the value of the total assets, less the £325,000 IHT allowance.
The only other time IHT will need to be paid is when the trust is closed, which will be upwards of six percent tax on the most recent 10-year anniversary valuation.
In their analysis of ‘Deathwishes’, requests on how life insurance payouts will be allocated after a person’s death, DeadHappy found country’s dogs receive £60,000 on average, while cats get £52,000.
The insurance firm revealed that the largest bequest for a dog in the UK was a whopping £350,000, with the biggest for a cat being £250,000.
Overall, DeadHappy’s own customers have left £11.7million and £4.5million to their dogs and cats, respectively.
Women were found to be far more likely to remember their pets in their will, with 71 percent specifying that their pet must be looked after following their death.
In comparison, only 29 percent of men made the same request for their pets when making the same arrangements.
Phil Zeidler, co-founder and CEO at DeadHappy, said: “People often identify as either a ‘dog person’ or a ‘cat person’, but perhaps the clearest indication of which pet is most loved can be found in their owners’ bequests.
“Our analysis of over 130,000 ‘Deathwishes’ shows that dogs are the clear winners when it comes to living the high-life once their owners have passed.
“And not just by a whisker, either, as the average dog has been left two times the median salary of UK employees.”
He added: “In fact, the largest legacy was £350,000, specifically ‘for my husband to look after the dogs well’. And while the largest gift for a cat was £100,000 less, it too was left by a woman, who requested ‘the payout to go to mum to look after the cat.
“Even though we all know that death is unavoidable, talking about death isn’t easy. But planning for it doesn’t have to be difficult or morbid. And remembering others in your will or legacy – whether two-legged, four-legged, or some other number of legs – can be a therapeutic and, dare I say, fun activity.”
Source: Read Full Article