Best 10 Tips For Inheritance Tax Planning (For UK Residents)

Over the course of your life, you will have built up money and assets that you will want to leave to your loved ones.  However, your estate may be subject to Inheritance tax if its value exceeds the £325,000 threshold.


Our financial experts share their top tips to minimise the impact of inheritance tax (IHT):


1. Use the annual exemption

You can give away gifts worth up to £3,000 in each tax year and these gifts will be exempt from Inheritance Tax when you die.  You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires.


2. Use the small gifts exemption

You can make small gifts up to the value of £250 per tax year to as many individuals as you like, other than those benefiting from any other exemption.


3. Make regular gifts out of surplus income

Any regular gifts that you make out of your after-tax income, not including your capital, are exempt from Inheritance Tax. These gifts will only qualify if you have enough income left after making them to maintain your usual lifestyle.


4. Potentially exempt transfers

Any gifts you make to individuals will be exempt from Inheritance tax as long as you live for seven years after making the gift.  If you survive for less than seven years then any increase in value will have fallen out of your estate and taper relief may reduce the IHT payable on the gift.


Remember that if you give an asset away but retain an interest in it, for example you give your house away but continue to live in it rent-free, this gift will not be a potentially exempt transfer.


5. Make use of the spouse exemption

Your estate usually doesn’t owe Inheritance Tax on anything you leave to a spouse or civil partner who has their permanent home in the UK – nor on gifts that you make to them in your lifetime – even if the amount is over the threshold.


6. Use transferable nil-rate band allowances

Since 9 October 2007, spouses and civil partners have been able to transfer their Nil Rate Band allowances so that any part of the Nil Rate Band that was not used when the first spouse or civil partner died is transferred to the individual’s surviving spouse or civil partner for use on their death.


7. Business Property Relief

Business Property Relief allows you to pass on some of the business assets in your estate free of Inheritance Tax. You can pass these assets on while you’re still alive or as part of your will. You can claim relief on property and buildings, or assets such as unlisted shares or machinery. Depending on the type of asset, relief is available at either 50 or 100 per cent.


8. Agricultural Property Relief

If you own agricultural property and it’s part of a working farm, you can pass on some of your property free of Inheritance Tax in your will or before you die.  You can claim relief for farm property such as farmland. You can also claim relief for farm buildings if the size of the buildings is proportionate to the size of the farming activity.


Relief is not available for farm equipment but this may qualify for Business Relief as a business asset.


9. Make gifts to charities

Any gifts you make to a “qualifying” charity, both during your lifetime and in your will, will be exempt from Inheritance Tax.  A “qualifying charity” is an organisation that’s recognised as a charity for tax purposes by HM Revenue & Customs (HMRC).


10. Make use of trusts

There are a number of ways to reduce inheritance tax through putting assets into trusts.


Trusts can also have a number of additional benefits including establishing a way of providing for your loved ones as well as protecting your assets.


When thinking about Inheritance Tax Planning it’s a good idea to update or write your will as well to ensure that your remaining estate is distributed in accordance with your wishes.

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