How Brits Can Lower Inheritance Tax Bill and Avoid ‘Stealth’ Tax | Personal Finances | Finance
Getting an estate in order is not on the forefront of many people’s minds, but by neglecting it, the Brits could cause those close to them to lose much of their remaining inheritance. The amount of inheritance tax (IHT) claimed by the government has increased over the past year.
“It is important to recognize that anything left to a spouse or registered civil partner upon death is exempt from inheritance tax.
‘In addition, each person has an allowance of £ 325,000, known as the zero rate band, and assets passed on on death up to that limit are exempt from inheritance tax (provided no donation important was done during the seven years preceding the death). “
Meanwhile, another allowance, known as the zero residence rate band, allows up to £ 175,000 of residential property to be passed on to children, grandchildren, etc., without incurring inheritance tax; this allowance gradually decreases for estates over £ 2 million.
Unused allowances can be claimed by the surviving spouse or the estate of the registered civil partner, allowing couples to leave up to £ 1million in assets free of inheritance tax upon the death of the survivor. Donations to charities are exempt from inheritance tax during their lifetime and upon death.
One of the potential ways to reduce an IHT bill is to reduce the value of an estate.
Mr. Patel explained, “Inheritance tax can generally be reduced by giving or spending what you have to reduce the value of your estate.
“You can make a donation of any value and provided you survive seven years and do not retain a gift benefit, it will be out of your estate when calculating inheritance tax; It is important to verify that the donation does not immediately trigger other taxes such as the capital gains tax.
“In the meantime, you can give up to £ 3,000 a year, which immediately falls outside your estate without having to survive 7 years.”
People are also allowed to give smaller gifts up to £ 250 per year to as many people as they like and larger gifts on occasions such as weddings.
The “non-income normal expenditure rules” also allow people to donate excess income that immediately falls outside their wealth, which could be a useful tool for those who can afford it.
Another possible option is to place assets, such as cash, property or investments, in a trust. This may mean that they are no longer part of someone’s estate for inheritance tax purposes and therefore would not be taxed.
However, people should be aware that the rules around trusts are complex and people can be taxed when they invest or withdraw money. Therefore, anyone interested in setting up a trust should seek advice first.