Inheritance tax is a tax on the estate (the property, money, and possessions) of someone who has passed away In the UK, this tax is currently set at 40% of the value of the estate above £325,000 For many families, this tax can lead to a significant reduction in the amount of an inheritance that can be passed down to loved ones However, there are strategies that can be implemented to help minimize or even eliminate the amount of inheritance tax that is due Here are 7 ways to avoid inheritance tax in the UK.
1 Make Use of the Nil-Rate Band
The first £325,000 of an estate is tax-free, thanks to the nil-rate band This means that anything below this threshold is not subject to inheritance tax If your estate is valued at less than this amount, then there is no need to worry about inheritance tax However, it’s essential to keep in mind that this threshold is per person, so for married couples or civil partners, the combined threshold would be £650,000.
2 Take Advantage of the Residence Nil-Rate Band
In addition to the standard nil-rate band, there is also a residence nil-rate band that can be applied to the value of a person’s home when it is passed down to direct descendants, such as children or grandchildren This additional allowance currently stands at £175,000 per person and is set to increase to £175,000 by 2020/21 tax year When combined with the standard nil-rate band, this means that a couple can potentially pass down a total of £1 million tax-free to their children or grandchildren.
3 Make Use of Exemptions and Relief
There are various exemptions and reliefs available that can help reduce the amount of inheritance tax that is due For example, gifts given to a spouse or civil partner are exempt from inheritance tax, as are gifts to qualifying charities avoiding inheritance tax uk. Additionally, there is relief available on certain types of business property and agricultural property, which can further reduce the value of the estate for tax purposes.
4 Gift Assets During Your Lifetime
One way to reduce the value of your estate for inheritance tax purposes is to gift assets during your lifetime As long as you live for at least seven years after making the gift, it will be exempt from inheritance tax Even if you do not survive for the full seven years, there may still be a reduction in the amount of tax due, depending on how long you live after making the gift.
5 Set Up Trusts
Setting up trusts can be an effective way to reduce the amount of inheritance tax that is due By placing assets into a trust, they no longer form part of your estate and are, therefore, not subject to inheritance tax There are various types of trusts available, each with their own rules and regulations, so it’s essential to seek professional advice before setting one up.
6 Consider Making a Will
Having a valid will in place can help ensure that your assets are distributed according to your wishes and can also help minimize the amount of inheritance tax that is due By setting out your intentions clearly in a will, you can make use of exemptions and reliefs that are available, as well as take advantage of the nil-rate band and residence nil-rate band allowances.
7 Seek Professional Advice
Inheritance tax can be a complex and confusing issue, so it’s essential to seek professional advice from a solicitor or financial advisor who specializes in estate planning They can help you navigate the rules and regulations surrounding inheritance tax and provide you with practical advice on the best ways to minimize the amount of tax that is due.
In conclusion, while inheritance tax can be a significant concern for many families in the UK, there are ways to minimize or even eliminate the amount that is due By making use of the nil-rate band, residence nil-rate band, exemptions and reliefs, gifts during your lifetime, trusts, making a will, and seeking professional advice, you can ensure that more of your assets are passed down to your loved ones rather than being lost to tax.