If the worth of your estate is over the nil rate band of £312,000, then you may need to pay inheritance tax (IHT) on it when you die – and this can levy a significant cost on the assets that you would prefer to go to your relatives. However, there are methods by which you can avoid inheritance tax, or at least mitigate the effects of it on the inheritance that you will leave behind.
Inheritance tax is charged as follows:
- A 40% tax on all assets over the £312,000 nil rate band.
- Gifts made in the last seven years are also taxed, but at a decreasing rate as each year passes. After seven years, most gifts become exempt.
- Additional exemptions are available during the seven year period.
Exemptions to help avoid inheritance tax include:
- Spousal exemption – any inheritance that goes to your spouse or civil partner is free of IHT.
- Gifts exemptions – up to £3,000 per year, plus gifts of up to £250 per person per year, plus wedding or civil partnership gifts (which are calculated depending on your relationship to the new couple).
- Donations to charities and political parties.
Specific trusts and life assurance can also help mitigate or avoid inheritance tax.
It is well worth getting professional advice on inheritance tax and finances. If you are concerned that there may be tax to pay on your estate when you die, you can fill out our short enquiry form and we will put you in touch with a group of qualified financial experts who are offering free initial consultations.