Inheritance tax: five ways to pay less tax at HMRC in 2022 | Personal finance | Finance
While many people have their finances under control in January, people are being reminded that there are legal ways to reduce the amount of inheritance tax they have to pay to HMRC in 2022. Britons waste millions of pounds every year on inheritance tax, which could be avoided if they refresh the rules.
Inheritance tax is a tax paid on the property, money and possessions of a deceased person.
People will have to pay 40% to HMRC on assets if they exceed the threshold – which is usually £325,000 if the assets were not left to a spouse, civil partner or charity.
It can be a costly mistake – in 2020 the nation gave away £125m in unnecessary inheritance tax (IHT) through ‘gifts gone wrong’.
That equates to a quarter of a million pounds each, which could be legally avoided with the right advice.
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Five ways to legally avoid paying inheritance tax:
- Give £3,000 per tax year tax-free. This allowance can be carried over to a fiscal year.
- Donations to charities and political parties are exempt from inheritance tax.
- £250 per person can be donated each tax year is excluded from inheritance tax and does not count towards the £3,000 annual exemption on donations.
- Consider donating money from your income rather than your assets if possible.
- Wedding gifts are tax exempt up to a limit of £5,000 for a gift from a parent, £2,500 from a grandparent and £1,000 from anyone else.
A rule change has also been announced that should make life easier for thousands of people.
Anyone who receives their inheritance on or after January 1, 2022 will no longer need to declare the value of the estate they inherited, unless they apply for probate.
A probate is a person’s legal right to manage and control the assets of a deceased person.
However, if the estate owner died before December 31, 2021 or December 31, 2021, the rule change will not be valid.