How to avoid inheritance tax when rewriting your will
The British paid £ 5.4bn in inheritance tax last year and the rule of law transport that divides 40pc is expected to hit a record £ 6bn this year, before rising further for to reach £ 6.6 billion in 2026.
Soaring house prices, frozen tax breaks and deaths from coronaviruses have caused an increase in the number of people paying. In five years, the number of families affected by the tax is expected to increase by about three-fifths.
However, there is a way to beat the IRS from beyond the grave.
What is an “act of amendment”?
A deed of amendment – or DOV – is a legal document that allows beneficiaries of an estate – children, for example – to make changes to a will, on behalf of the deceased, after their death.
This means that if someone did not write their will in the most tax-efficient way, if they inadvertently excluded someone from their will, or if they did not write a will. at all, beneficiaries can redirect the money they stand to inherit to other parties.
In the event that you are about to inherit a windfall that will take your own estate over £ 325,000 – the personal allowance above which 40pc IHT applies on your death – you can change the will. the deceased so that the money you inherit goes directly to other beneficiaries, reducing or eliminating the amount of tax you would otherwise have to pay later.
For example, you might want to redirect some of the money you inherit to charity or your grandchildren through a discretionary trust for their benefit later.
If 10pc of the overall estate is donated to charity, the IHT rate paid is reduced by 4 percentage points to 36pc and all donations are tax exempt.
You can donate up to £ 325,000 to a trust before any tax is due, as long as you survive the donation for seven years. This solution is sometimes used by grandparents who wish to contribute to private tuition fees.