3 tips to avoiding inheritance tax

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3 tips to avoiding inheritance tax


Benjamin Franklin famously said, ‘In this world nothing can be said to be certain except death and taxes’. And if your estate is valued at over £325,000, everything above this figure will be taxed at 40% when you die. Even in death there’s no relief from taxes!

However, there are certain steps you can take to mitigate the amount of tax you pay. By taking these measures, you can start to plan your estate to stop the taxman getting his hands on your assets before your children do.

1) Give your assets away

If you live seven years beyond giving an asset away, HMRC can’t touch it and it won’t be considered part of your estate. If you die within seven years, inheritance tax will be paid on a reducing scale.

You are able to give away up to £3,000 a year inheritance tax free, as well as additional money to your children and grandchildren. However, you should keep in mind that you might have to pay Capital Gains Tax on certain assets you give away. Speak with a lawyer or accountant if you’re unsure.

2) Put money into a trust

As long as certain conditions are satisfied, for example the 7 year rule (except when using a Discounted Gift Trust), when you put money into a trust you don’t own it any more. For the purposes of inheritance tax, the value of trusts normally won’t be counted when your bill is calculated.

It's worth noting that not all assets are subject to IHT for example some equities, family businesses, farmland and most pension funds. There is now an additional 'Residential property' relief available to most home owners in addition to the basic £325,000 per person.

An extra bonus is they give you a degree of control over how the money is spent. It avoids handing over valuable property, cash or investments while the beneficiaries are young or vulnerable.

3) Leave something to charity

When you leave money to charity, you get the added bonus of benefiting a good cause. When you leave at least 10% of your estate to charity, it will reduce the amount of inheritance tax due on the rest. The rate of inheritance tax will be reduced from 40% to 36% overall. A win win situation!

Trust law is complicated. If you have any questions around the subject, please get in touch. We’d be more than happy to help.

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