5 Tips to Cut Your Inheritance Tax Bill
Inheritance Tax (IHT) is one of the most resented forms of taxation in the UK. Originally introduced with the intention of splitting up large estates, IHT has begun to affect more and more people as property prices have risen. Even once the ongoing reduction in house prices has been taken into account, as many as 10 million households may now be subject to Inheritance Tax.
The burden of IHT is frequently avoidable – and even when it cannot be eliminated altogether, it is always possible to mitigate it to some extent. With a little pro-active planning it should be possible to cut your inheritance tax bill drastically. Try following these five steps to give yourself a head start.
1. Make a Plan
The most important step that you can take to reduce your IHT bill is to make a comprehensive plan for the distribution of your assets. This process should begin with a valuation of those assets; look at everything you own, including things like ISAs and PEPs. Add their value together, and deduct from this any outstanding debts. If this figure exceeds £325,000 your estate will be subject to inheritance tax.Consider who you wish to pass assets to, and which assets you would like to disburse where. Having done this, it may become clear that there are some parts of your estate, whether they are physical items or cash, that can be passed on immediately without any negative impact on your lifestyle. This plan should be the cornerstone of your efforts to reduce your IHT bill.
2. Distance Yourself From Your Assets
IHT is only charged on assets that are part of your estate upon your death. There are numerous ways in which you can remove assets from your possession, thereby reducing your exposure to the tax. One of the most popular such methods is the establishment of a trust. Many people who have life insurance or a death in service arrangement with their employer will choose to have this paid directly to a separate beneficiary. This is vital, as it will mean that the money bypasses your estate and therefore the tax. You can also use trusts to shield other assets, such as cash or shares. This can be a fairly complex process, however; you may wish to read the relevant articles elsewhere on this site.3. Use Your Allowances
Gifts up to a total annual value of £3,000 are exempt from inheritance tax, on the condition that the giver survives for a further seven years after the gift is made. This provides a useful means by which individuals can give away assets that would otherwise be distributed on their death, while seeing the benefit that they bring the receiver.4. Make a Will
This is as important a step as you can take. If you fail to make a will there is no guarantee that your assets will be disbursed in the manner in which you would like, and this frequently means a higher tax bill for your beneficiaries. Consult with a solicitor, who will be able to advise on your individual circumstances and word the document accordingly.5. Spend It!
After all, it is your money. Make sure that you enjoy it while you can. IHT will not, of course, affect the individual whose estate is being disbursed. However, it can have a significant impact on the financial benefits received by your dependants. A little planning can go a long way to minimising this impact.Professional Low Cost Website
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