Avoiding Inheritance Tax

Avoiding inheritance tax is a topic at the forefront of many UK residents minds as they look to the future and to ensuring that children and family are well provided for after their death.  Inheritance tax (IHT) levies a charge on the estate of an individual who has passed away, and this charge can be quite considerable for larger estates.  However, there are several ways of increasing your chances of avoiding inheritance tax.

  • Inheritance tax is charged at a rate of 40% on all assets that are part of your estate over a nil-rate band of £312,000.  As such, the first £312,000 is untaxed, so if you have an estate with a total worth of less than this then you will be avoiding inheritance tax.
  • No inheritance tax is levied on an estate that is inherited by your spouse or civil partner.  However, this may mean that in the future, your spouse's estate will be more vulnerable to IHT when they pass on due to the increased assets and worth.
  • Certain gifts in the seven years before death are exempt from IHT.  There is a yearly exemption for up to £3,000 in gifts, as well as for any number of gifts of up to a total of £250 per recipient each tax year.  Additionally there are exemptions for certain sums given as wedding gifts.
  • Charity and political donations are also exempt.

For other gifts, there are two broad categories:

  • PETs – potentially exempt transfers.  These are gifts in the seven years leading up to death that are subject to IHT, but with the tax levied decreasing as each year passes.  If the donor survives the full seven years then the gift becomes fully exempt.
  • Gifts with reservation – if the donor is still in position to benefit from the gift then IHT will still be levied, so for example it is not possible for you to be avoiding inheritance tax by giving your property to children and then continuing to live there unless they are charging you normal rent.

Avoiding inheritance tax, or at least reducing the effects it has on your estate, can also be achieved through the careful use of trusts and life assurance.  However, these can be complex to handle and as with all such important financial matters, it is important to get professional advice on the matter.  Fill out our online enquiry form for a free, no-obligation first consultation from qualified UK financial consultants.

Disclaimer: Every effort is made to keep the site accurate, however please bear in mind that tax rates are subject to change. If you require tax advice you should speak to a professional tax adviser.