Yes, you heard that right. The government actually offers advice to citizens about how to avoid one of it’s most controversial taxes: inheritance tax, through their money advice service. Are we surprised?
Anyway, if you think that you might have to pay inheritance tax on your estate, take a look at these tips for cutting it. Not all of them involve changing your will.
Give Gifts To Family Members
When you give gifts to family members, they don’t actually become the legal owners, at least, not immediately. Essentially, if you give a gift to somebody else, you’re still liable for the tax on that gift for seven years. At the end of the seven years, that tax liability is eliminated and won’t be taken into account when calculating the amount of tax you owe on your estate when you die.
Currently, there are limits on the amount of money you can gift in any particular year without having to pay inheritance tax. This stands at £3,000 a year, plus any money you want to give away when your children get married. Just be wary that even if you don’t get hit with inheritance tax, you might still have to pay capital gains tax on some of your interest-bearing assets.
Make Gifts To Your Spouse
If you’re in a marriage or a civil partnership, you’re able to give whatever you like to your spouse or partner, avoiding inheritance tax in the process. This means, essentially that you’re able to gift your house, in theory, enabling your partner to avoid inheritance taxes on a probate house sale once you’re gone. It’s worth pointing out, however, that slightly different rules apply if your spouse lives permanently outside the UK and in these cases it’s worth getting professional advice before making any large financial decisions.
Put Everything Into A Trust
Whenever you put your assets – be they cash, property or investments – into a trust that neither you, your spouse or your children can benefit from, they are no longer part of your inheritance, according to the tax man, and therefore, no longer taxable.
Often, wealthy parents use trust funds for things like paying for their grandchildren’s education or supporting a family member with a disability.
It’s relatively straightforward to set up a trust fund, and you can do so right away with your financial advisor. It’s worth pointing out, however, that you’ll still be liable for capital gains tax for certain types of assets if you transfer them to a trust while you’re alive. If they’re transferred as part of your will, you won’t pay capital gains.
Leave Some Of Your Estate To Charity
The cool thing about giving to charity is that anything you give is free from inheritance tax, thereby reducing your inheritance tax bill. If you leave more than 10 percent of your estate to charity, your overall inheritance tax bill will be cut. People who give more than 10 percent pay a 36 percent rate on their inheritance, rather than a 40 percent rate for everybody else. This rate is currently set on all assets that exceed the zero-tax rate threshold of £325,000.