Inheritance tax (IHT) looks likely to affect far more of us, than just the extremely wealthy, in the next few years.
The threshold remains at £325,000 and house prices continue to rise.
Saving/Escaping IHT is easier for some than others.
If your estate is mostly property, it’s extremely difficult to not end up paying IHT if you exceed the limit.
Giving the house you live in away is not accepted as a genuine act by IHT, whether it’s something you want to do or not.
If you pay commercial rent to the new owners or plan to have them live with you and split the household bills equaly then you can potentially not have have to pay IHT. However, for most of us it’s an almost unavoidable expense.
Below are some ways to reduce your IHT -
The simplest way to reduce your IHT is to make lifetime gifts.
You can give £3,000 each year as a gift with no impact on your £325,000 allowance.
Larger gifts can also be tax-free, however only if you live for a minimum seven years after giving them.
These types of gifts are known as ‘Potentially Exempt Transfers’, (commonly abbreviated to PETs), they can be for any amount.
Giving your assets as gifts early clearly makes sense, but how soon should you start?
You don’t want to risk giving away too much and falling short financially– however if you delay the payement too long and you risk being caught by the ‘seven year tax period.’
Smaller, regular gifts may be a more safer option than gifting everything in an one-off transfers.
Remember that it’s only the ‘excess’ above your nil-rate band that is hit by IHT (40%). The majority of your estate can survive intact.