Avoiding Inheritance Tax The Legal Way
- Author James Winsoar I
- Published October 23, 2010
- Word count 505
Inheritance Tax (IHT) affects an ever increasing number of people, most who would prefer their hard-earned cash to pass to their wife and kids when they come to the end of their life. However much of their wealth or estate, including their home, bank accounts, life assurance not in trust or even family heirlooms, might have to be sold in order to meet the inheritance tax liability on death if the correct steps haven't been carried out to protect their wealth.
However, it continues to be legally possible to ensure that much of your estate as can be stays out of Her Majesty's Revenue & Custom's (HMRC) clutches which can be done by seeking specialist, professional advice. Correct IHT planning is all about passing as much of the proceeds of an estate as can be to the beneficiaries instead of the HMRC. It also involves maintaining flexibility and control over any of the clients instructions.
The simplest way to minimise inheritance tax (IHT) is to make gifts while you are still alive.
Each tax year you can gift £3,000 of assets and they will not count towards your estate for IHT. If you do not use up the entire exemption in one year you can carry it forward, but only for one year. Gifts of up to £250 to an unlimited number of different individuals are also tax-exempt, but you cannot use both exemptions to give to the same person.
You can also give £5,000 to your children as a wedding gift. Grandparents can hand over £2,500, and anyone else can give £1,000.
Gifts between spouses are always IHT-free, and are donations to charities and political parties.
If a gift is regular, made out of income and does not affect your standard of living, any amount of money can be given away and ignored for IHT. But, you should take advice from a tax expert before you make regular gifts to ensure they will be acceptable to the HM Revenue & Customs.
You are allowed to make other tax-free gifts, called potentially exempt transfers, as long as you survive for another seven years. If you die within the seven years and the total value of the gifts is more than the £300,000 threshold, you are allowed to apply taper relief to any tax you owe.
The tax on the gift reduces on a sliding scale if it was made between three and seven years previously.
If you cannot apply taper relief you add the gifts to your other assets and pay 40 per cent tax on the sum above the £325,000 threshold.
If you are worried that you won't survive for seven years, you can set up a decreasing-term insurance policy that will cover any IHT bill.
Contact a professional Will Writing professional now and write a Will and be sure it accurately expresses your wishes and is planned correctly to save the maximum amount of tax.
Transfer assets through the prudent use of lifetime gifts.
Create an IHT-efficient fund to enable beneficiaries of the estate to meet the tax liability without reducing family wealth.
James Winsoar started the Will Writers Network to help people find a local experienced Will Writer. Making a Will not only helps avoid paying inheritance tax but it also assists greatly in reducing stress on families because it makes the distribution of the estate much easier.
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