10 TIPS TO MINIMISE INHERITANCE TAX
Currently levied at 40% on assets over the value of £325,000, Inheritance Tax is no longer just for the rich and famous. However, there are several legal ways that you can give more to your family and less to the tax man, so here are our tips on minimising your inheritance tax.
1. Write a Will
This may seem obvious, but it really should be the first step in your estate planning to ensure your financial matters are dealt with in the way you want, and to do so tax efficiently by avoiding the intestacy rules which apply when there is no will.
2. Husband/Wife Transfers
Transfers of assets between husband and wife are exempt from IHT. So when the surviving partner dies, the Inheritance Tax threshold doubles to £650,000.
3. Use Your Annual Allowance
Each year, you can give away up to £3,000 without paying Inheritance Tax, plus you can give £250 to as many people as you like which will also be exempt. Wedding gifts of varying amounts are also eligible as are donations to qualifying charities. If you do give gifts or cash away that are worth more than these specified amounts, they will be exempt from Inheritance Tax as long as the donor survives for 7 years from the date the gift is given.
4. Gifts From Income
If you make gifts that are paid for out of your income, are considered normal expenditure and which do not reduce your standard of living, they would be free from Inheritance Tax.
5. Devalued Assets
You are able to gift any assets you own that have fallen in value since you purchased them without paying capital gains tax, although various criteria need to apply.
6. Get Life Cover
A whole of life insurance policy would pay out the amount equal to your tax liability into a trust and be exempt from Inheritance Tax.
7. Set up a Trust
With a discretionary trust, you can gift upto £325,000 per individual every 7 years without paying Inheritance Tax. More can be gifted although it will then incur a transfer tax obligation, currently 20%. A trust allows CGT rollover, continuing control over the assets, ring fencing and protection from beneficiaries or those claiming through them, such as former spouses or creditors.
8. Preserve Access to Income
Specially designed discounted gift trusts enable access to income to continue, after the right to capital has been gifted away. There will be an immediate saving on Inheritance Tax whilst the remaining capital will be exempt after seven years while retaining a right to income.
9. Business Property Relief
There are certain discretionary management services that invest into unquoted companies and that are exempt from IHT after two years.
10. Consider making gifts to charity
Gifts to charities in your will, are exempt from Inhertiance tax. Additional, if you intend to give 10% of your net estate value to a charity, then the rate of this tax falls to 36% on the remaining estate value.
As inheritance tax and capital gains tax can be complicated, we would always recommend that you take professional advice to maximise the opportunities available. Contact a partner at HA Law to benefit from their wealth of knowledge in this area.
