It is possible that inheritance tax will mean that your loved ones do not receive as much of your wealth as you had hoped as the HMRC may take up to 40% of the value of your estate after the nil rate band of £325,000.
However, Inheritance Tax is commonly referred to as the ‘voluntary’ tax as there are many ways to reduce it and in some cases, completely eliminate it over time.
Below are some tips to help you to reduce your Inheritance Tax liability
1. Make a Will
Your Will dictates who you would like to benefit from your estate. If you choose to leave your primary residence to a direct descendant (child or grandchild) then you will quality for the Residence Nil Rate Band of £175,000. This is in addition to the Nil Rate Band of £325,000 so you can potentially shelter £500,000 from inheritance tax through this.
It is important that you have a Will in place so that your assets are left to who you wish and when you wish them to receive them.
If you die without a Will, then your estate will be determined by intestacy rules which might mean that people inherit your assets who you would not have chosen. It also causes a lot of stress and legal fees for your family.
2. Use your gifting allowances
Each tax year you can give away up to £3,000 in total which is immediately outside of your estate for inheritance tax purposes. This is in total.
There are other gifting allowances that you might not be aware of, for example, you can give away up to £5,000 when a child gets married (£2,500 for a grandchild).
There is another allowance that many people are not aware of which is to make gifts from excess income you have each month. This is immediately outside of your estate for inheritance tax purposes but there are a lot of rules around this allowance which are complex. It is important that you keep full records of all gifts otherwise it might be challenged by HMRC on your death.
To find out how to use this allowance, you can book a no-obligation meeting with one of our financial advisers or call us on 0117 973 0500.
3. Make use of your pension
Many people are unaware that any assets inside their pension is outside of their estate for inheritance tax purposes. If you die before you’re 75, your beneficiaries can usually withdraw what they like from your pension without paying any tax at all.
4. Gift to registered charities
Gifting money to charities that you choose helps a good cause and can also reduce your inheritance tax liability,
Any charitable gifts are free from inheritance tax immediately.
If you leave 10% or more of your total estate value to charity then your inheritance tax rate will be reduced from 40% to 36%.
Get professional advice to reduce your inheritance tax liability
Inheritance tax rules and allowances are complex. To help you fully understand how inheritance tax could impact your estate and who would be liable for your inheritance tax bill when you pass away, we offer a no-obligation meeting with a financial adviser.
A financial adviser can help you to create an estate plan to help you mitigate the amount of tax your estate might owe and help you to leave as much of your wealth to your loved ones as possible.
Book a no-obligation meeting with one of our financial advisers or call us on 0117 973 0500.
The writing of a Will involves the referral to a service that is separate and distinct from those offered by St. James’s Place. Wills and are not regulated by the Financial Conduct Authority.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
