Avoiding Inheritance Tax
Avoiding Inheritance Tax (IHT) is one of the most valuable and easily achievable services that a good financial planner can provide.
Inheritance tax can apply to portions of the wealth you leave to your children and heirs, but it is relatively easy to avoid to the extent that it has been called ‘the most avoidable tax of all’. Nonetheless, many people fail to put in place a timely strategy for Inheritance Tax avoidance, and the Revenue was expecting to net some £2.3bn in Inheritance Tax during 2009/10.
The individual tax-free allowance for Inheritance Tax in 2010/11 is £325,000 (£650,000 for a couple), and any additional wealth above those allowances can be subject to Inheritance Tax at 40%. Wealth included in your estate can be the value of your home, of insurances, and other properties and assets, less your debts and liabilities when you die.
At Principle First our experts will show you how to avoid Inheritance Tax by making use of the following options.
You can speak to an adviser on 0800 678 5929 or submit an Inheritance Tax advice enquiry
How to avoid Inheritance Tax
A good first step in avoiding Inheritance Tax is the use of IHT exemptions. These are gifts that you give before you die, and, because they reduce the value of your estate, are an important part of your strategy of Inheritance Tax avoidance.
These may be Spouse Exemptions, which are gifts made between spouses or civil partners during their lifetime, or on death. Small Gift Exemptions up to £250 will avoid Inheritance Tax, and can be given to any number of persons in each tax year. However, these gifts cannot be used in conjunction with Annual Exemptions, which allow you to gift up to £3,000 each year to your children.
With Annual Exemptions it is worth noting that last year’s allowance carries forward into this year, if you did not already take it up. This means you could gift up to £6,000 this year. However, last year’s allowance can be taken no further than this year, and so it is a case of ‘use it or lose it’.
If you have a wedding in the family, you may gift your children £5,000 and your grandchildren £2,500 as once-off wedding gifts as part of your strategy of Inheritance Tax avoidance.
Combinations of these gifts are also possible. In the year your child marries, you can combine the £5,000 wedding gift with your £3,000 annual exemption to make a tax-free gift of £8,000. However, you cannot top up your annual exemption of £3,000 with a small gift exemption, to make £3,250.
If you are unsure of what qualifies as an IHT exemption, please speak to one of our IHT advisers on 0800 678 5929
Using Trusts in avoiding Inheritance Tax
There are a number of quite complex ways to use trusts to avoid Inheritance Tax, and consulting one of our expert Inheritance Tax planners is recommended in this area.
Life insurance written in trust, for example, is no longer considered part of your estate for purposes of calculating your Inheritance Tax liability. This is a considerable weapon in avoiding Inheritance Tax, as the value of your estate is reduced by the amount of your life insurance cover.
Avoiding Inheritance Tax with Potentially Exempt Transfers (PETs)
Potentially Exempt Transfers remain potentially subject to IHT until the person making the transfer survives for 7 years after the transfer is made. This means that a PET made in 2011 is not beyond the clutches of the taxman until the person making it has survived to the year 2018.
The most common example of a PET is probably the family home. You can gift your home to your children and it becomes free of Inheritance Tax 7 years later, provided that you have not passed away in the meantime.
Our advisers are always more than happy to help work out how to avoid Inheritance Tax on your estate. All consultations are free and completely confidential.
You can speak to an adviser by calling 0800 678 5929 or submit a financial advice enquiry to get a callback
