Inheritance Tax: Three Things You Should NOT Do If You Inherit Money | Personal finance | Finance
Inheritance tax is set at 40% and is paid on a person’s property, money, possessions and savings at the time of death. Latest figures from HM Revenue and Customs (HMRC) show record IHT revenue was collected in June as more people were forced to pay inheritance tax due to rising property prices . However, there are three things people shouldn’t do when inheriting money.
Making any of the mistakes above could land some people in hot water with HMRC and lead to financial hardship later on.
Meanwhile, people considering lowering the inheritance tax bill for loved ones should take advantage of the loopholes to leave them with less tax to pay.
Jenny Holt, managing director of customer savings and investments at Standard Life, said getting it wrong will reduce the full benefit of your donation.
She said: “There are many tax-efficient ways to support your loved ones and being knowledgeable about the options depending on your family’s situation will put you in the best position to get the most out of your money and their future. “
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Ms. Holt shared tips for making gifts to children or grandchildren tax-free:
“You can gift up to £3,000 to anyone in a tax year and gift £250 to as many people as you like without paying Inheritance Tax (IHT).
“This can be carried over for a year, but if you don’t use it you will lose it. So regularly giving money to loved ones can be an effective way to minimize the IHT to be paid on your estate to your death.”
Pay in their ISA
“You can open a Junior ISA (JISA) for your child or register one in the name of your grandchild. Currently you can pay up to £9,000 in total in a tax year into a JISA and this money can be invested giving their savings a chance to grow over time.
“They can access the money when they turn 18 and they won’t pay any tax on anything they withdraw or pay capital gains tax on any investment growth either. .
“There’s also the option of backing their Lifetime ISA – which can be opened by anyone between the ages of 18 and 39 and could help them save for property or boost their retirement savings.”
Consider the Benefits of Using a Trust
“Using a trust allows you to provide for your grandchildren while you’re still here, in addition to offering several tax advantages. As a trustee, you retain an element of control over the funds and how and when they are paid out, while gifts made to the trust can reduce your estate for IHT.
“Using a discretionary trust gives grandparents the greatest flexibility and control, but the taxation is higher and more complex. You should seek financial advice if you are considering using a trust to help you choose the right option for your situation.”
Give bigger gifts…but be aware of the seven-year rule
“If you want to gift larger sums to individuals, these will not count for IHT purposes if you live seven years past.
“If you don’t live for the full seven years, the money you donated will be added to the value of your estate, eroding your £325,000 threshold.