Reducing Inheritance Tax 101
Inheritance Tax (IHT) has hit new heights in 2017, with the last figure showing it is now up to £5 billion.
New rules extending the IHT-free allowance have, however, come into play, and mean that some couples may be able to pass on £1 million tax-free by 2020. Nevertheless, IHT is expected to rise even more over the next 5 years, potentially reaching £6.2 billion by 2022.
With this in mind, there are a few ways you can reduce the likelihood of a hefty IHT bill.
Make a Will
Making a Will is an excellent place to start, as it’s a simple way in which you can plan where your estate will go in order to minimise the effect of IHT on your savings.
Not having a will means that your estate would be processed according to the rules of intestacy upon your death. This means that it’s possible that more of your estate ends up taxed.
In order to give away gifts without incurring any inheritance tax on them, it’s important to consider the size of these allowances. Every year, you have a tax-free gift allowance of £3,000. This is also known as the annual exemption, and can be carried on to the next year (and this year only) if you don’t use the full allowance the previous year.
However, there are more options that you can consider, for example making gifts for a wedding or civil ceremony to a family member, or making gifts to charity.
Setting up a Trust
Trusts can be an effective way of reducing IHT, as cash, property or investments would no longer belong to you once they are part of a trust.
However, there are complex regulations and laws regarding this, meaning that it’s important to seek advice to ensure you make the right decisions for your estate.
The earlier, the better
You can give away gifts free of inheritance tax providing you live for at least 7 years after you give them. Alternatively, you may wish to downsize to a cheaper property, giving money to your children now instead of later. This means that your children will still benefit from the residence nil-rate band that applied to your previous home.
If you’re interested in finding out more about IHT and need advice, talk to our financial advice team. Please call on 01926 492406 or email us at firstname.lastname@example.org to make an appointment.