There are probably only a handful of people in the UK who are more than happy to pay inheritance taxes, the rest of us want to know how we can legally avoiding getting held to ransom by the taxman.
Firms like Slater & Gordon are regularly advising their clients on how to make the most of personal allowances and providing tax-efficient strategies to reduce or eliminate any tax liability.
Here is a look at some of the ins and out of inheritance tax that you should try to get familiar with.
Understanding inheritance ta
The description itself explains what the tax is all about. Inheritance tax (IHT) is the duty that is due when you die and leave property, other assets and money to others.
The total amount of your personal wealth is calculated and this is referred to as your estate.
If the value of your estate is in excess of £325,000, there could be tax to pay if your estate is worth more than this. There has been plans announced by the government to raise the allowance by a further £175,000 per person, allowable against your main property.
This could mean that a married couple’s estate could reach a combined value of £1 million , before any IHT needs to be paid.
How to mitigate any potential IHT due
There are a number of tax-planning strategies which you are potentially currently allowed to use in order to help reduce or eliminate any IHT.
Give away some of your disposable income
One concession which it seems that many of us are unaware of is the ability to give gifts from your disposable income. There is no specific limit to the amount you give away, but the strict proviso is that it qualifies as ‘normal expenditure out of income’.
You could use this exemption to pass on sums of money to your loved ones on a regular basis but you remember that the exemption is not automatically granted, which means that it will have to be claimed retrospectively by the executors of your estate.
The 7-year gift rule
Very few of us know when exactly we are going to depart this world but if you are in good health, it would make sense to take advantage of the 7-year gift rule.
You could potentially give your estate away without any tax liability, provided you survive the gift by seven years or more. It is not as straightforward as it first seems to execute correctly and if you don’t want to fall foul of the various conditions that allow you to make this gift, you should take some professional advice in order to structure the arrangement correctly.
You are currently allowed to give up to £3,000 away each tax year to whoever you want to, without worrying about any inheritance tax issues.
You will need to use the allowance in each tax year or at worst, the following tax year. Beyond that period of two years, and you will have missed the opportunity to pass on up to £3,000 without the taxman being able to stake any claim.
Virtually no one likes inheritance taxes, so make sure you take advantage of your ability to gift some of your money.
Keira Pearson is a secretary at a solicitors in London. The first port of call when clients have questions, she is now sharing her knowledge with a wider online audience through writing articles.