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What is the best way to avoid paying inheritance tax?

As a UK resident, you’ve probably heard about the inheritance tax. It is one of the most controversial (and hated) taxes in Britain. Effectively, it is a tax on money that has already been taxed and that many people have worked hard to build up all of their lives. It is also charged at 40% on assets over £325,000, though there is some further allowance when married and in relation to property. However,  with property prices rising faster than ever, a bigger proportion of people are now being dragged into paying.

As such, it is often a tax that people seek expert advice on when it comes to reduce the amount they have to pay.

What to do if you want to reduce the amount of inheritance tax your beneficiaries will have to pay?

If you want to reduce paying inheritance tax, there are a number of ways in which this can be done.

  • There are specialist insurance policies you can take out that when you die, that will help to cover inheritance tax. These can be written into a trust (which is exempt from inheritance tax) and can be used to cover any shortfalls or provide an extra pot of money for your beneficiaries.
  • You can give your assets away and as long as you live seven years or more from the point you give them away, they will be exempt from inheritance tax. This can cause complications should you fall out with those you have given it to as they will legally own them.
  • You can gift money towards house deposits, weddings and university fees
  • If you invest in the stock exchange, certain companies qualify for 100% relief from IHT such as family companies and AIM-listed shares.

What other options are open to me to reduce inheritance tax?

Trusts – both offshore and UK based – can be utilised to save tax and keep control of your assets as you can also be a trustee when it is set up. This allows you to make decisions such as when, and to who, the trust is distributed.

You can make gifts into a trust, which are held there until the trustee decides it’s time for someone to receive them. The benefit of doing this is so you can stay in control.

Trusts are a really effective way to protect your assets, but they can also be quite complicated. It is always best to instruct experts to help you as they will be able to review your whole portfolio and make recommendations that are bespoke to you.

Pensions normally fall outside of your estate too and can be left to beneficiaries depending on the pension that you have. When estate planning with an expert, they will be able to look into this for you as part of a wider package of solutions to reduce your inheritance tax liability.

Inheritance tax planning can be complex, and people can often fall foul of the rules and regulations surrounding this. As with most estate planning, it is always worth seeking the advice of experts within this field. For information on the best options for your situation, 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.