How To Avoid Inheritance Tax
Although no one likes to think about it, making plans for when you are no longer around is wise. This may include thinking about passing your assets onto family or friends when you die. One key thing to know is that doing so could see inheritance tax due on assets you leave them. This could in turn reduce how much they actually get. In light of this, it's a smart move to think of how you can legally stop the taxman from getting his hands on your money - before your friends or family do!
But what are the best tips on how to avoid inheritance tax?
Draw up a will
One of the most crucial parts of estate planning is making a Will. This ensures your assets are divided up exactly how you wish and not subject to intestacy rules. Intestacy is best avoided as it can see inheritance tax applied to your estate. This means making a Will is key for avoiding inheritance tax.
Stay below the inheritance tax threshold
This is another great tip on how to avoid inheritance tax UK wide. For 2020/21, the threshold at which individuals start paying IHT is £325,000. The nil-rate tax band for couples is £650,000, as your individual amount of £325,000 can go to your partner when you die. There is also a 'main residence transferrable allowance' amount of £175,000 for individuals, which could help them avoid inheritance tax on property. It is key to keep these thresholds in mind to help avoid paying this tax if possible.
Give assets away
The law states that no inheritance tax is due on assets you give away - as long as you survive for at least 7 years after deciding to do so. It is also worth noting that individuals can give gifts amounting to £3,000 each year but without any tax being due on them. If one of your children is to be married, you can also gift them up to £5,000 but without having to pay inheritance tax.
Put your assets into trust
Putting assets into trust takes them out of your estate and means no inheritance tax is due on them. A common example of this idea in action is putting assets in trust which a child only gets when they turn 18.
Look at getting life insurance
This is a little-known but clever way of avoiding IHT. It sees you covering any potential tax bill by taking out a life insurance policy to meet the expected bill. The key point is to put the insurance policy in trust and ensure it is not part of your estate.
Give away assets that do not pay Capital Gains Tax
If you have an asset (like property) that has gone down in value, then it can be passed on without any capital gains tax liability. Any jump in value afterwards would build up in the estate of whoever the asset is passed onto and these gains would be IHT free after 7 years.
There really seems no point in living frugally and then seeing your family get hit by inheritance tax on any assets you leave them. It might therefore be best to avoid this type of tax by spending the money on treats for yourself instead, like a fancy holiday.
Inheritance planning with Integritas Financial Planners
The above gives a brief overview of how to reduce your potential inheritance tax bill. If you need professional guidance in this area or more information on inheritance planning, contact us today. Our expert team have the skills and knowledge to help make planning your inheritance simple. Click here to make an enquiry and find out more details.
Tax rules can change and the value of any benefits depends on your personal circumstances
Trusts and Will Writing are not regulated by the Financial Conduct Authority
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