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Legal News | 17.09.20

Could you be taking steps to reduce your IHT bill?


Inheritance Tax – how to minimise the most hated tax in Britain.

Often cited as Britain’s ‘most hated tax’, IHT is charged at 40% on the value of an individual’s estate above the nil rate bands that may be available at their date of death.

Simply put, one of the easiest ways to reduce your overall IHT bill is to reduce the size of your estate, possibly by spending it on having a good time, or by giving away your assets while you are alive.

While careful consideration needs to be given to the order in which any lifetime gifts are made, particularly if any form of trust structure is used, it may be possible, if you survive for at least seven years from making an outright gift to another individual, for the value of that gift to be excluded from your estate for IHT purposes.  Please do however consult us before taking the plunge and making any gifts so we can make sure that you don’t fall foul of the rules around gifting.

There are some other ways you can decrease the value of your estate without incurring any IHT:

  • Small gifts exemption – you can make as many gifts of up to £250 to any number of individuals per year, without any need to survive them by seven years for their value to fall out of your estate.
  • Annual exemption – if you wish to give away larger sums, you can give away up to £3,000 in a tax year and the gift’s value will immediately fall out of your estate.  You can also carry forward  one unused annual exemption from the previous tax year to the next tax year, but this is limited only to the one previous tax year, otherwise it is a case of use it or lose it  This exemption cannot be combined with the small gifts exemption to give one individual e.g. £3,250.
  • Wedding gifts – you are able to give away up to £1,000 as a wedding gift rising to £2,500 if it is your grandchild and £5,000 to your child; again, without the need to survive such gifts by seven years.  The timing of the gift should be close to the wedding itself.
  • Normal expenditure out of income – if you are fortunate enough to have excess income, you could consider making regular gifts ‘out of surplus  income’.  However, you must show that pattern of regular gifts has been established of comparable amounts and your standard of living is not compromised.  This can be a very valuable exemption with huge potential tax savings.  If you are considering making use of this exemption please ask for further advice as detailed records should be kept.

Despite all of the above, the most important factor to consider is whether you can actually afford to reduce the value of your estate in the first place. Reducing your IHT bill should always come second to maintaining your standard of living.

If you would like to discuss the various estate planning options available to you, please get in touch with us at wealth@wansbroughs.com or on 01380 733 300.


Posted By Our Wills, Tax, Trusts & Probate Team