How to cut your Inheritance Tax bill

How to cut your Inheritance Tax bill   

Before every-one  die, every- one make sure to leave as much of cash as possible to loved ones, rather than to taxman.

Here are some tips.

We can’t think of any tax that is particularly popular, but Inheritance Tax is undoubtedly one of the most hated of all the taxes in Britain. And the threshold at which it has to be paid has now been frozen until 2018 at the earliest.

Inheritance Tax is a levy charged against the estate you leave to your loved ones when you die. However, it isn’t applied across the board – your estate must be worth £325,000 or more (or £650,000 for couples).

Should you pass the threshold, everything above that figure will be walloped with a massive 40% tax. Not that long ago, Inheritance Tax only affected the wealthy, but with the astronomical house price rises we have seen over the past decade, more and more of us are leaving estates valued over and above the threshold.

It’s no surprise that people want to avoid shelling out so much after death if they can avoid it!

There is a discount for giving to charity, and there are other ways of cutting your eventual bill. Let's take a look at them.

The charity discount

There's a reduced rate of Inheritance Tax of 36% for those who leave 10% or more of their estate to charity.

The move will hit the Government’s coffers to the tune of around £170 million a year by 2016, but serves an important political purpose – if the Government’s Big Society folly is to work at all, it relies on charities stepping into the breach and filling the gaps left by public sector cuts. And that won’t happen without further funding.

Of course, in reality, your loved ones won’t be any better off if you go down this route – you’ll just ensure that some of your bill goes towards a good cause, rather than to the Treasury! You can find out more information on what qualifies at the HMRC website.

However, there are ways you can actually make a difference to the final Inheritance Bill your estate faces.

Get giving

If you want to sidestep Inheritance Tax, you may want to get giving! We all have a £3,000 limit each year for gifts, which is completely free of Inheritance Tax. What’s more, if you don’t use your allocation this year, it can be carried over to next year, so you can hand over £6,000 to a loved one, tax-free!

You can also give away £250 to any number of people every year, though you can’t combine it with the £3,000 annual allowance.

Weddings also offer an opportunity to avoid Inheritance Tax. Parents can give their children £5,000 each as wedding gifts, £2,500 to grandchildren, or wedding gifts of £1,000 to anyone else. There are hoops to jump through though. The gift must be made (or at least promised) on or shortly before the day of the wedding. If you make the gift after the ceremony, without having promised it earlier, or if the ceremony is called off, it will no longer be exempt.