You will most likely already know that inheritance tax may take up a large proportion of what you leave behind to your loved ones when you pass away.
Inheritance tax is currently set at 40% above the £325,000 threshold. This hasn’t increased since 2011, but what has increased is the amount you are able to pass on tax-free if you are planning to pass on your home to your children. This, known as the Residential Nil-Rate Band, means your tax-free allowance can be extended to up to £425,000, providing your home is worth at least £100,000.
Another way to reduce potential inheritance tax liability is to make use of gifts. These can be given away as cash or via valuable assets, meaning you can help to ensure your loved one receives more of what you wish to give to them.
What are the rules on gifts and inheritance tax?
It’s important to take note of the rules on gift allowances in order to ensure you are not hit with an unexpected amount of IHT. Currently, individuals are able to give their loved ones a maximum of £3,000 worth of gifts tax-free per year. If you don’t use all of this up, you can carry it on to the next year, but to the next year only. As well as this, individuals are free to give as many gifts as they like (but not to the same recipient) up to £250.
An important thing to consider with inheritance tax is that if a gift is made more than 7 years before you pass away, it will be exempt from inheritance tax. Another exemption is that gifts between husbands, wives or civil partners are free from inheritance tax.
What else is exempt from inheritance tax?
- Gifts that are part of what you usually spend every year
- Gifts to people who are getting married, which is up to £5,000 to your children
- Gifts for anyone dependent on you
- Gifts to charities, museums or universities that were established in the UK
If you’re looking to cut down your inheritance tax that isn’t spending your money or giving it away, there are other options that are available to you. If you’re interested in finding out more about reducing inheritance tax, talk to our financial advice team. Please call us on 01926 492406 or email us at firstname.lastname@example.org to make an appointment.