3 Tips to Avoid Inheritance Tax

3 Tips to Avoid Inheritance Tax

Even in death there’s no relief from taxes!

Benjamin Franklin famously said, ‘In this world nothing can be said to be certain except death and taxes’. And if your estate is valued at over £325,000, everything above this figure will be taxed at 40% when you die.

However, there are certain steps you can take to mitigate the amount of tax you pay. By taking these measures, you can start to plan your estate to stop the taxman getting his hands on your assets before your children do.

Gifting of assets

If you live seven years beyond giving an asset away, the taxman can’t touch it and it won’t be considered part of your estate. If you die within seven years, inheritance tax will be paid on a reducing scale.

There’s an allowance of £3,000 per year which an individual can gift to others, with additional money to children and grandchildren. However, you should keep in mind that you might have to pay Capital Gains Tax on certain assets you give away. Speak with a lawyer or accountant if you’re unsure and always speak to a financial adviser for advice regarding inheritance tax planning.

Putting money into a trust

As long as certain conditions are satisfied, money can be placed into specific trusts which means you don’t own the money anymore. For the purposes of inheritance tax, the value of trusts normally won’t be counted when your bill is calculated.

An extra bonus is they give you a degree of control over how the money is spent. It avoids handing over valuable property, cash or investments while the beneficiaries are young or vulnerable. For example, you could say a grandchild can only access their trust when they turn 25.

Not all types of trusts benefit from excluding your estate from inheritance tax. It’s best to take professional advice to make sure you set up the correct trust and ensure certain conditions are met, so be sure to give us a call if you are considering this.

Leaving something to charity

When you leave money to charity, you get the added bonus of benefiting a good cause. When you leave at least 10% of your estate to charity, it will reduce the amount of inheritance tax due on the rest. The rate of inheritance tax will be reduced from 40% to 36% overall. A win-win situation!

Trust law is complicated and everyone’s situation is unique. If you have any questions around the subject, please get in touch. We’d be more than happy to help.

If you would like advice on your specific Inheritance Tax liability, give us a call on 01482 219 325 or email enquiries@informedfinancialplanning.co.uk.