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5 ways to reduce your inheritance tax bill


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There can be various challenges when trying to navigate inheritance tax (IHT) planning, so an estate can be divided in the most tax-sheltered manner possible when someone passes away.

That said, we’ve put together the top five ways for reducing the impact of an inheritance tax bill.

Read on to find out more.

  1. Seek a financial planning service

One of the best ways to reduce your IHT bill, and help with IHT planning, is to seek out an effective financial planning service.

Financial advisers can provide you with all the necessary information surrounding IHT, including what thresholds and allowances you have.

They can tailor their advice to help you with your specific IHT goals – which could be to divide your estate among your family or friends, for instance – while receiving the most shelter from tax.

A financial adviser can be the best option for anyone looking to reduce their IHT bill as efficiently as possible.

  • Make use of your IHT threshold

Another way to reduce your IHT bill is to ensure you make the most of your IHT threshold.

As of the tax year 2022/2023, your beneficiaries will not need to pay IHT on any of your estate below the value of £325,000.

For anything above this value, the standard IHT rate of 40% will apply – but only to that which exceeds the threshold.

Therefore, you can either distribute your estate, sheltered completely from tax, if the full value is below the threshold, or receive a significantly lower IHT bill by using this allowance against the value of your estate.

  • Leave your estate to a spouse or civil partner

You can also reduce your IHT bill by leaving a portion, if not all, of your estate to your spouse or civil partner.

There’s no IHT tax to pay on any of your estate that’s left to a married spouse or civil partner (as of tax year 2022/2023).

This applies to any value of your estate above the threshold. If you wish to distribute some of your estate to other people, you can do so up to the threshold, then leave the rest to your spouse – all while being sheltered from IHT.

  • Gift your assets away

Your tax bill can also be reduced through gifting your assets away before you die.

As of the current tax year 2022/2023, you can gift assets to people without paying IHT, as long as the gift is given seven years before you die.

This can include money, a home, stocks and shares listed on the London Stock Exchange, and many more asset types.

Also, you have an annual tax-free gift allowance of £3,000, and a small gift allowance of up to £250 per person. Wedding gifts have their own allowances – £5,000 for a child, £2,500 for a grandchild or great-grandchild, and £1,000 for any other person.

If you die within the seven years, IHT is applied to the assets on a sliding scale called taper relief. The IHT rate is 40% within the first three years of giving the gift, and reduces by 8% each year between three and seven years after giving the gift.

  • Devise a will

By creating a will, you have control over distributing your estate in the most tax-efficient manner. Without a will, your estate is distributed according to intestacy rules, which may make your beneficiaries liable for IHT.

For example, intestacy rules state that your entire estate is left to a spouse if there are no children, grandchildren, or great-grandchildren, but if there are, they receive 50% of the value of your estate over £270,000.

This could mean a high IHT bill for the percentage shared to children. 

With a will, you can strategically distribute your estate between your spouse (being IHT-free) and children to make the most of the allowances and exemptions.

Be sure to consider these top five methods when conducting your IHT planning, to ensure you have the best financial plan in place, for you and your loved ones.

Please note, the value of your investments can go down as well as up


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