With a considerable increase in the value of properties in London and the South East, the number of individuals subject to a significant amount of inheritance tax has increased and will continue to rise massively over the next few years. The inheritance tax rules leave many at risk of paying 40% tax on their estate.
What is Inheritance Tax?
Upon the death of an individual, the government evaluates the worth of their estate and deducts their liabilities. This gives you the value of the estate, which tax is then payable on, subject to any further reliefs or exemptions. Currently there is a ‘nil- rate band’ of £325,000 or £650,000 for a married couple or civil partnership; anything above this may be subject to a 40% tax. So how can you avoid paying the hefty tax figure? Here are 5 ways in which you can legally avoid paying the tax:
- Writing a Will
- Admissible Gifts and Transfers
- Gifts above the Annual Exemption
- Normal Expenditure out of Income Rule
Writing a Will
With over 70% of the UK population without a will, many are at risk of their beneficiaries paying £100,000’s in duty. Writing a will acts as a form of contract, which ensures that your assets are distributed accordingly. A married couple (or civil partners) can avoid paying any inheritance tax on the first death by making use of the spousal exemption within a will.
For further information, read our article on ‘Top 10 Reasons for Writing a Will’ here.
Admissible Gifts and Transfers
An individual is able to gift up to £3000 each year as an annual exemption. This figure can be carried to the next year but must be used or it will be lost. An individual can also give: * £5000 for each child that gets married * £2500 for each grandchild that gets married * £1000 to anybody else that gets married
A provision of £250 can also be made each year to as many people as possible.
Gifts above the Annual Exemption
Another way that you can avoid paying out inheritance tax is by gifting assets in advance. If you survive 7 years from the date of the gift, the amount of the gift falls outside of your estate.
If you are concerned with protecting your assets, gifts can also be made into a trust. Subject to certain limits, no tax is payable on the gift into a trust and if you survive 7 years from the transfer, the value falls outside of your estate.
Normal Expenditure out of Income rule
Making regular payments to someone can be covered by this rule provided it can be proved that such payments have been made from income and not capital.
It is important to take individual advice in this area – if you want to discuss your particular circumstances please give us a call to arrange a meeting or email firstname.lastname@example.org