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Inheritance Tax: How Can I Reduce It?

The uproar over increasing national insurance contributions and rocketing property prices has led to a return of wealth taxation issues rising higher up on the political agenda. One of the most well-known of these is inheritance tax.

Inheritance Tax (IHT) is defined as a government levy on the estate (property, money or possessions) of someone who passes away. It can be made unnecessarily complex if people fail to take preventative measures, resulting in a major financial burden and administrative nightmare for those left behind.

However, by acting on estate planning and sorting out your affairs, you can help minimise future financial complications for your loved ones when the inevitable comes. Anyone who has any assets at all – a home, savings, investments, even a car – has an estate. It requires a well-thought-out plan if you care about how your assets are handled when you pass away or if you become incapacitated.

How much is inheritance tax?

How much your loved ones pay depends on the value of your estate, minus any debts. Crucially, you needn’t pay tax if your estate is worth less than the £325,000 threshold, or if you leave everything over £325,000 to your partner, a charity, or a community amateur sports club. If neither of these applies, your estate will be taxed at 40% on anything above £325,000 (or 36% if you leave a minimum of 10% to charity).

Is it legal to reduce my inheritance tax bill?

Estate planning to reduce your IHT is perfectly legal and accepted by the UK’s HMRC. We’ve rounded up a number of tried-and-tested methods to reduce and sometimes avoid paying IHT altogether.

  1. Make a Will

Making a Will is an important part of estate planning and one of the simplest and easiest ways to ensure your hard-earned assets reach the right people. It allows you to retain control over your IHT efficiency, as Wills can be used to make gifts or to set up trusts, which are likely to be exempt from IHT.

  1. Gift your assets

Gifting your assets while you’re still alive requires careful financial planning. You can give gifts totalling £3,000 each year, which is free from IHT. You can also give your child £5,000 IHT-free as a wedding gift, or £2,500 to a grandchild or great-grandchild if they’re getting married.

  1. Get life insurance

Some life insurance policies cover the potential liability for IHT, so it’s worth doing some research into the policies that could best work for you.

  1. Put assets into a trust

By placing assets within a trust, they will not form part of your estate after you die, consequently avoiding IHT. For example, you could put your assets into a trust for the benefit of your children when they reach the age of 18, helping to save tax and keep control of your assets.

Next steps

Inheritance Tax is a complicated aspect of wealth planning. By working with financial experts, you can minimise your inheritance tax bill and maximise the amount of money your beneficiaries receive.

At Turner Little, we have many years of experience delivering proactive, professional guidance on the setting up and running of Trusts and Foundations. The knowledge and expertise of our specialists ensures we can support your financial future, no matter how complex your requirements are. To find out how we can help you plan IHT-efficiently, get in touch with us today.

About Turner Little

At Turner Little, we have been helping individuals understand what lies beneath for over 30 years. Based in the UK, we have a wealth of experience offering professional services to our clients, as professional Company Registration Agents, Registered Bank Intermediaries, Business Consultants and Trust providers. To get expert advice and up-to-date information on all things banking, tax and company formation, speak to a member of our trusted team today.

Turner Little and its affiliates do not provide tax, legal or accounting advice. Material on this page has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.