05/06/2024
Inheritance Tax: What can be done to reduce your exposure?
The Government received £5.2billion in Inheritance Tax last year but only one in twenty estates actually paid Inheritance Tax.
So, let’s have a look at some of the ways you may be able to reduce your exposure to Inheritance Tax:-
Nil Rate Band
The Nil Rate Band is a personal allowance, that each individual is able to gift, upon death, without attracting any Inheritance Tax. The Nil Rate Band for 2018/19 is set at £325,000 per person and this is considered by the Government every April.
Residential Nil Rate Band
In addition to the Nil Rate Band (explained above), if you are passing property to a direct descendant (a child, grandchild, great-grandchildren, step-children, adopted children or foster children) then you are entitled to claim the Residential Nil Rate Band. The Residential Nil Rate Band is currently set at £125,000 and this can be added to your Nil Rate Band of £325,000 meaning that you can pass £450,000 including a property (to a direct descendant) and this will be exempt from Inheritance Tax.
Gifts to Charity
If you leave at least 10% of your estate to charity, then the rate of Inheritance Tax that will be paid is reduced from 40% to 36%.
Lifetime Gifts
Gifts of large sums of money given during your lifetime may still be liable to Inheritance Tax if you do not survive for seven years following the gift being given. Although the rate of Inheritance Tax may reduce depending on when the gift was given in relation to the time of death.
Gifts of £3,000
You can make gifts of up to £3,000 in each tax year and this will not attract Inheritance Tax. This £3,000 is a combined total but if no gifts are given in one tax year then this can be rolled forward to the next tax year (this can only be rolled forward one tax year though!).
Small Gifts of £250
In addition to the £3,000 that you are able to gift, you are also able to gift the amount of £250 to an individual without attracting Inheritance Tax, for example as birthday or Christmas presents.
Gifts upon Marriage / Civil Partnership Ceremony
A parent can gift up to £5,000 (grandparents can gift £2,500 and anyone else can gift £1,000) on the day of, or shortly before, a marriage or civil partnership ceremony and, as long as the wedding or civil partnership ceremony goes ahead then the gift will not attract any Inheritance Tax.
Occupation
If you die in active service whilst employed as a police officer, fireman, paramedic or whilst serving in the armed forces your estate may be exempt from Inheritance Tax.
Trusts
Setting up Trusts during your lifetime for the benefit of someone else means that the money placed into the Trust will no longer form part of your estate. However, once placed into a Trust, the money is no longer yours and cannot be removed by you without forming part of your estate.
Trusts take careful consideration and planning and should be discussed fully with a professional before being put in place.
