Inheritance Tax tips for minimising liability
Here are a few Inheritance tax tips for minimising your tax liability. Here at Iain Longworth Partnership we have a wealth of experience advising clients on the best method to avoid paying to much inheritance tax.
Check that you actually have Inheritance Tax liability
It is worth considering when Inheritance Tax actually applies. Every person has a tax free allowance of £325,000 which is also known as the nil rate band. Inheritance Tax only applies to the value of the estate above this at a rate of 40% on death.
Transfers between husband and wife are exempt from Inheritance Tax and if the nil rate band is not used on the first death the value of the estate on the second death that will be exempt from Inheritance Tax doubles to £650,000.
Take advantage of exemptions
You can give away up to £3,000 a year, which is known as your annual allowance. This will be immediately exempt from Inheritance Tax . There is also a small gift exemption, meaning you can give up to £250 to as many people as you like.
You can also gift in other ways to keep your liability down such as making wedding gifts up to £5,000 for parents and donations to qualifying charities.
Make gifts out of excess income
You can make gifts out of your income free from Inheritance Tax. For the gifts to qualify the gifts must be part of your normal expenditure and be made out of your income. They also cannot be seen to reduce your standard of living otherwise they will not qualify. This exemption will be claimed by the executors of your estate hence the importance of making a will
Take out Life Cover
The simplest way of providing funds to pay the inheritance tax liability is to take out a whole-of-life insurance policy. The payment of the death benefit will happen immediately following death and the funds will be available to pay the inheritance tax liability without any need to wait for grant of probate.
Preserve access to income
A gift with reservation of benefit can prevent an asset being given away during a person’s lifetime whilst allowing continued use or enjoyment of that asset.For example a holiday home for use by the children.