Inheritance tax: 9 “legitimate” ways to raise the tax threshold – expert | Personal finance | Finance

Use gift bonuses

Every year people can donate up to £3,000 tax free. This is called the annual exemption.

Mr Davies said: ‘If you haven’t used it in the last year you can combine it and pass on £6,000.’

People can also give up to £250 each year to the number of people they wish (but only one gift per beneficiary per year) or give a wedding gift of up to £5,000 to their child; up to £2,500 to their grandchild; up to £2,500 to their spouse or civil partner and £1,000 to anyone else.

Mr Davies said: “Beyond these allowances, you can transmit as much IHT as you want for free. As long as you live for at least seven years after donating money, there will be no IHT to pay.

Give regular gifts

People can also make regular donations from their earnings.

Mr Davies said: “These gifts are immediately IHT free – no need to wait seven years – and there is no cap on the amount you can give, provided you can demonstrate that your standard of living is not affected.”

Leave a legacy and donate to charity

If people leave at least 10% of their net worth to charity or a few other organizations, they can get a discount on the IHT rate. This could reduce tax to 36% instead of 40% – on the rest of their taxable assets.

According to a report, donations left to Wills currently bring in £3.4billion a year, representing 16% of all revenue raised for UK charities, and that number is set to double further by 2050.

Use retirement allowance

Pensions are generally not subject to IHT for those under 75.

Mr Davies said: ‘They can be passed on tax effectively and in some cases even tax free. If you have any retirement allowance left, use it.

Create a trust

Trusts have traditionally been a staple of IHT planning. By creating one, it can mean that the money is not part of an estate if the person lives for at least seven years after establishing it.

However, Mr Davies said: ‘The taxes and related laws are complicated – you should seek specialist advice if you are considering this.’

Comments are closed.