In 2013-14, HMRC (Her Majesty’s Revenue & Customs) charged families £4.3bn – a six-year high figure. Here’s how you can help reduce your IHT liability.
For the current tax year, the Inheritance Tax threshold is £325,000 (or £650,000 for married couples and civil partners). In other words, that amount of money and assets can be passed on by you in the event of your death, with no liability for inheritance tax. If one of a married couple dies, they can pass on their whole estate to their spouse or civil partner with no inheritance tax payable.
Inheritance Tax is a complex area, so professional advice can be a good thing. Although there has been negative publicity in recent years about celebrities using tax-avoidance schemes, there is plenty you can do to legitimately minimise your tax liabilities. The following are simple steps you can take towards paying less inheritance tax.
- Plan ahead
It is possible to give away assets such as property, with no Inheritance Tax to pay if you survive for at least 7 years. You can also take out specific life insurance for those 7 years, to cover the tax liability, just in case you should die sooner than expected.
- Be aware of the rules for married couples and civil partners
If you’re getting married or entering a civil partnership, it pays to be clear on the rules for married couples, so you can make any necessary amends to your financial plans soon afterwards.
- Write a will trust
Contrary to popular belief, trusts are not just for very wealthy people. Rather than giving all of your estate straight to your spouse or civil partner, you can set up a discretionary trust to earmark money for your children. An appointed trustee can control the assets and even arrange for your spouse/partner to receive an income if required.
- Make good use of annual exemptions
You can give gifts of up to £3,000 a year (in total, not per person) without incurring inheritance tax. Knowing this ahead of time can help you pass funds on to your children in a tax-efficient way over a number of years.
- Wedding gifts
Before the wedding day, each parent of the bride or groom can give gifts of up to £5,000, and grandparents and other relatives can give up to £2,500, and any other wellwishers up to £1,000.
Everyone’s financial circumstances are unique, and tax planning is a highly complex area. If you need specific advice relating to your financial circumstances, call us on 01943 876631 or contact us through the website.