How can I reduce my Inheritance Tax Liability?

Inheritance tax (IHT) can be a significant expense for many families when a loved one passes away. However, there are ways to mitigate exposure to IHT liabilities and ensure that your assets are passed on to your loved ones in the most tax-efficient way possible.

Reducing your inheritance tax liability by gifting

One way to reduce your IHT liability is to make gifts to your loved ones while you are still alive. Under UK law, you can make gifts up to £3,000 per year and these gifts will be exempt from IHT. Additionally, you can make gifts of up to £250 per person per tax year without any IHT implications. If you’re married or in a civil partnership, you and your partner can both use these exemptions. Naturally, these can add up to a significant amount over time.

You can also gift amounts in excess of the allowances. Such gifts to individuals are known as Potentially Exempt Transfers. Essentially the gift remains in limbo for 7 years. It escapes IHT should the donor survive for 7 years.

You can also make tax exempt gifts from surplus income. These are exempt as long as a regular gifting pattern is established and it can be proved the gift is from income that is surplus to the donor’s requirements.

Tax efficient investments

There are tax incentives and reliefs that provide relief from IHT charges. These typically exist for investments in enterprise, but also for assets used for agricultural purposes and commercial woodland.

Bringing your liability down using the Residence Nil-Rate Band

Another way to reduce your IHT liability is to ensure you qualify for the residence nil-rate band (RNRB). This requires a property that was the person’s home (or the proceeds from its sale) to be inherited by a lineal descendant. Eligibility is also lost when the value of an estate exceeds £2m. However surplus assets can be given away immediately prior to death to secure eligibility for the relief.

Making use of trusts

You can also reduce your Inheritance tax liability by making use of trusts. There are several different types of trusts, each with their own advantages and disadvantages. However, generally speaking, trusts can be used to protect assets from Inheritance tax, and can also be used to provide for loved ones who may be unable to manage their own finances.

Knowing good house-keeping is key to reducing your inheritance tax liability

No, we don’t mean busting out the polish and duster and giving the house a spring clean. We are, of course, talking about keeping your metaphorical financial house in good order. How so? Well, one good example is that of your Will. Is the current version up to date? It’s important review and update such documents on a regular basis. This will help to ensure that your assets are distributed in the way that you intend, and can also help to minimise the inheritance tax liability your loved ones pay.

Spend your money!

Perhaps a simple but often overlooked strategy is its yours, so enjoy it! Determine what you need to get by, seek financial advice if appropriate and enjoy the rest.

By mindful of other consequences

Other taxes can be incurred when assets such as property are given away, and there are anti-avoidance rules to be mindful of.

Remembering it’s always ok to ask for help (and even more so, if you’re asking us!)

Finally, it’s always recommended to seek professional advice. IHT planning experts will be able to advise you on the most tax-efficient way to structure your assets and ensure that your loved ones are provided for in the best way possible. So, remember that planning ahead is key when it comes to reducing your IHT liability. And, acting sooner rather than later is something your loved ones will thank you for.

Call us today on 01243 782423 if you would like to speak to one of our reputable tax planning experts. Alternatively, you are welcome to email us from our contact page – and someone will be in touch! We’re always happy to talk people through and to get them on the right track. So, what are you waiting for?!

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