The Best Ways To Reduce Inheritance Tax – How You Can Save Money On IHT Invoices
Peter McGahan, CEO of the financial consultancy company Worldwide Financial Planning (WWFP), explained how the British can leave money to their relatives “rather than to the tax authorities”.
Government figures revealed that the average IHT bill in the country was £ 209,502 for the 2018/19 fiscal year.
An individual’s assets can include their property, some property and money, according to HMRC.
Currently the standard rate of inheritance tax is 40 percent, but it is only charged for an estate exceeding the threshold of £ 325,000.
“There are lots of other tax mitigation methods out there, so here are some tips for leaving your money with your loved ones rather than the ‘beloved’ taxman,” McGahan said.
Take advantage of trusts
One of his first suggestions to the public is to take advantage of trusts. Assets left in trust are not subject to the IHT.
Mr. McGahan said: “If you have a life insurance policy, it can be paid out on death to your estate, which simply increases your estate for estate tax.
“This policy could be written in trust to transfer it out of your estate and to your beneficiaries with a simple trust document.
“There are also ways to build trust capital now while you are still alive. Have no fear, they are really quite normal and popular. A trust allows you to entrust your money to trustees (you choose them). They become the legal owners and manage it for the beneficiaries you choose.
“Some trusts allow you to assign the value of the trust on death to the beneficiaries but keep an interest in it through income. One of them, for example, is a discounted gift trust, which allows you to build income when you create the trust.
“The income comes back to you over the life of your life and the remaining capital and its growth passes to the beneficiaries tax-free if you have lived for more than seven years. “
He added: “There is an added benefit in that the donation at that point is immediately discounted by your right to repayment of capital, immediately reducing your estate. So, if you are younger and in good health and were to live for a reasonable length of time, your initial donation is reduced by that amount.
“This is estimated at the time by the trust provider and is not agreed until death with income. Any future growth of the funds you invest in is also exempt from inheritance tax.
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“A loan trust is another trust, but with this program you appoint trustees and give them a loan, and then you are allowed to withdraw it later as a loan repayment. Its main advantage is that the growth of the money invested is outside the estate.
“There are other trusts, but the space prohibits coverage of them and your independent financial advisor, accountant or lawyer will advise you on this.”
Know what relief you are entitled to
For the tax expert, commercial property relief may be a friend for those looking to lower their IHT bill, but it comes with some risk.
“Consult with your ISA and consider moving them to an AIM ISA to use the corporate property relief which is currently 100% inheritance tax relief applied to qualifying assets,” McGahan suggested.
“First make sure you understand and are comfortable with the risks associated with this type of investment.
“While the commercial property relief is currently 100%, this may change in subsequent governments, so remember that it is not set in stone.
“Additionally, many business owners who currently enjoy the comfort of knowing that they could benefit from commercial asset relief on their business will of course lose it when they sell the business, all assets from the sale. being transferred to their domain.
“Not all business assets are 100% lightened and your advisor can explain them to you. “
Cash gifts for loved ones
Mr. McGahan advocates giving cash as a way to save money on IHT, as well as an act of good faith.
“Use whatever cash gifts you can, as well as gifts outside of the normal expenses you are allowed to make.” They will be outside your domain and you will be able to see the smile, ”he said.
Make a will
Making a will is crucial when planning for the financial security of the family, as well as any extenuating circumstances involving inheritance tax.
“Make sure you make a will. Naturally, this will ensure that your estate passes through to those who should receive it, but it will also make it easier for your beneficiaries to change your will after your death to handle any changes in inheritance tax, ”explained Mr. McGahan.
“This is called an act of amendment and is available within two years of death.
“While you are with your lawyer, you should also consider durable powers of attorney, which will allow people you trust to make decisions about your health, well-being and financial affairs if you become incapable. “
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