Ways in which you can reduce Inheritance Tax

By : Nick Marr

Inheritance Tax is a tax paid by someone who inherits money or property after a person has died if that person’s estate is worth over a certain amount of money. Currently, in the UK, the threshold for paying Inheritance Tax is if, collectively, all of a person’s assets and estate – property, possessions, money, savings and shares etc. – add up to more than £325,000.

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You’ll end up paying 40% tax on the amount that goes over the threshold, which can mean if you’re wanting to leave money and assets behind for your loved ones after you die, they might not get as much as you’d like them to. But don’t worry, here are just a few ways in which you can reduce the amount of Inheritance Tax paid.

Write a will

One of the best ways to ensure that your money and assets go to who and where you want them to is to have a will written up before you die. If you don’t have a will written, everything you owned will be distributed in accordance with intestacy rules and may be subject to unnecessary Inheritance Tax.

Donate some money to charity

If you have a favourite charity or cause close to your heart that you’d like to leave some money behind for, anything you donate to them is free of Inheritance Tax. Plus, if you donate a minimum of 10% of your estate to charity, the Inheritance Tax rate due on the rest of your estate reduces from 40% down to 36%. So, your loved ones will end up receiving more in the long run and your chosen charity will benefit too. Win-win.

Put assets into a trust

Setting up a trust that neither you, your spouse or any of your children under the age of 18 can access is another way to reduce Inheritance Tax, as anything that goes into that trust no longer forms part of your estate. You can set up a trust at any point in your life or have one set up in your will.

Have life insurance

Having life insurance isn’t necessarily a way to reduce the rate of Inheritance Tax, but a payout after your death may help your loved ones to pay the bill once you’re gone. This could save them having to sell on any property to cover the cost too. Just make sure that the payout goes into a trust and doesn’t instead form part of your estate.

Give gifts

If you were to give a gift to a family member, friend or anyone who isn’t your spouse or civil partner (so you can no longer benefit from it), then it might still be subject to Inheritance Tax. However, if you give that gift away and then live another seven years beyond doing so, it’s then no longer classed as part of your estate and therefore no tax will have to be paid on it. You can give up to £3,000 a year away completely Inheritance Tax free and up to £5,000 on the occasion of your child or grandchild’s wedding.

Spend it

Of course, a sure-fire way of avoiding Inheritance Tax is to enjoy all your money and assets before you go. You’ve worked hard throughout your life to earn all your money, so why not make the most of it and treat you and your family to a big holiday of a lifetime in your retirement?