It’s one of the most hated taxes but there are ways to legally avoid paying inheritance tax – you just need to brush up on the law and make sure you’re taking advantage of all the allowances
Inheritance Tax is paid by a person who inherits money or property or a levy on the estate of a person who has died. The standard inheritance tax rate is 40 percent, however there are 15 ways people can make savings and avoid giving all their hard earned cash to HM Revenue and Customs (HMRC).
When it comes to paying taxes, Brits hate having to pay IHT because they feel like they are being charged twice – once when they earn it and the second time when they die. Yet only one in six families have to cough up the tax as the threshold sits at £325,000 – so you only have to pay 40% tax if the amount of money you are passing on exceeds this.
That said, rising property prices can push even modest earning households into the bracket where they are eligible to pay IHT. But don’t despair as there are 15 ways you can avoid paying IHT and they’re totally legit.
One of the most common ways to reduce the amount of inheritance tax you have to pay is to give all your assets to a partner or spouse.
Married people can give all their assets away to a partner without having to pay the 40 percent levy, but if you haven’t legally tied the knot you could be in trouble as it doesn’t apply to cohabiting couples. And if the rules aren’t followed for gifting to children and grandchildren, there could still be a hefty tax bill to pay further down the line.
How to to pay less Inheritance Tax:
Take out life insurance:
Writing your life insurance into trust is a legal arrangement that separates the policy from your estate, ensuring the full payout goes to your beneficiaries without being subject to IHT
Consider putting a property into a trust:
You’ll need to speak to a professional but If you put things into a trust, provided certain conditions are met, they no longer belong to you so won’t be counted when your Inheritance Tax bill is worked out.
Take advantage of business owner exemptions:
If you have shares in a private trading company that qualify for business property relief you could transfer those shares into a discretionary trust with no initial IHT charge.
Give it to your husband or wife:
Married people can give all their assets away to a partner without having to pay the 40 percent levy.
Other ways to save on IHT:
Donate it to charity (or a part of it)
Gift up to £3,000 to family members and friend
Take advantage of the Agricultural Land or Buildings transfer
Give away assets seven years before you die
Make the most of wedding gift allowances (up to £5k)
Buy a funeral plan
Give away assets that have fallen in value
Spend it on yourself
Use the small gift exemption of £250.
