Inheritance tax (IHT) is the tax paid on assets left when somebody dies. It can cost your loved one’s hundreds of thousands in the event of your death, although it is possible to legally avoid it by following these five tips.
1. Make a will
Having a will is the one of the biggest parts of estate planning. Without one, your assets won’t be distributed in line with your wishes and will instead be distributed according to intestacy rules. It’s this that will be liable to IHT and cause some hefty bills.
2. Gift your assets
If you choose to gift your assets away and then survive for another 7 years, all assets you gift to others are free and will avoid inheritance tax. However even if you die within those 7 years, IHT will still be paid but on a reducing scale. You can give gifts totalling £3000 each year that are completely free of IHT, and also gift £5000 on the occasion of your child’s wedding.
3. Put your assets in a trust
If you have young children, it’s advised to place your assets into a trust as they can benefit from it when they reach the age of 18. You can avoid IHT this way as it will not form part of your estate on death. You could even place assets into an ‘interest in possession trust’ where you can take income from the assets.
4. Give to charity
Anything left to a charity is free of IHT and not only that, but you will be donating to a good cause. If you leave 10% of your estate to charity, it will cut out the IHT on your remaining assets by reducing the rate from 40% to 36%. This means that your friends and family will receive more than they originally would, with charities also benefitting at the same time.
5. Spend it
As you get older, you may live on a tighter budget but when you realise that your beneficiaries get taxed at 40%, there is very little point in restricting yourself. You have worked throughout your life to build up all your assets and so you should now enjoy them.
After the sad event of a death, nobody wants to be left to pay hefty amounts of inheritance tax. Following the tips above mean you can legally avoid creating these bills. For any other questions, don’t be afraid to get in touch with us.