5 Top Ways to Reduce Inheritance Tax
Inheritance tax (IHT) today is no longer a tax for the very wealthy, in fact many people find themselves to be liable to IHT purely by the value of their homes without taking into account additional investments and savings.
We set out 5 of top ways by which you can plan to reduce your inheritance tax liability.
Make gifts when you can – you can potentially reduce the amount of IHT you pay by giving away assets (making gifts) whilst you are alive. There are many types of gifts you can make whilst you are alive to reduce your estate’s value.
There is no limit on the value of gifts treated as potentially exempt transfers but you must bear in mind that those gifts are treated as potentially exempt transfer for a reason! In essence, the gift will be IHT free if you survive 7 years after giving the gift. If you should die before the 7 years the gift will be treated as part of your taxable estate.
2. Make sure you have an up to date will. By leaving a will you have control over to whom your estate is payable. A carefully drafted will can ensure that your assets are left to tax exempt beneficiaries.
3. Family trust – by setting up a family trust you can effectively ring fence assets for inheritance tax purposes.
4. Be charitable! Gifts to Charities are IHT free. If you leave 10% or more of your taxable estate to charity your IHT liability will automatically be reduced to 36% from 40%. In effect, in this instance you can raise a charitable gift, for example, from £6000.00 to £10,000.00, without any increase in the IHT liability.
5.Make use of exemptions.
Each year you can make gifts free of IHT limited to £3,000 to anyone you like. You can also double this limit if gifts were not made in the previous tax year.
You can almost make small gifts of £250 to as many people as you like tax free.
Wedding gifts are exempt although there are rules about how much you can give
i. Parents can give cash or gifts worth £5,000
ii. Grandparents up to £2,500
iii. Anyone else up to £1,000
If you are in a position where you have excess income over your normal expenditure, the excess income can be gifted IHT free, so long as appropriate records are kept.
Of course, it is always best to speak with an experienced Inheritance tax expert prior to implementing changes.
At Solomons Solicitors we offer a no obligation initial review of your individual circumstances covering wills, applicable trusts and IHT implications.
If you would like to arrange a free review please call the office on 01202 802807 to book an appointment at either our Westbourne or Christchurch office. Home visits can also be arranged.