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How can I minimise inheritance tax?

04 August 2021 | Heledd Wyn

The general rules surrounding inheritance tax can be difficult to understand. This article will run through everything you need to know and highlight different ways in which you may be able to minimise inheritance tax. 

Inheritance tax is a subject that is often an emotional one for many people. After a long life of working hard and saving for the future many want to leave their assets to their children and loved ones, without leaving such a large tax responsibility. 

How much will I have to pay and can I minimise inheritance tax? 

Inheritance tax is a tax on the estate of someone who has passed away, including all their properties, possessions, and money.  

The amount of tax that will need to be paid depends on the value of the deceased’s estate – this is usually valued on their assets such as cash in the bank, investments, property or business, vehicles, and pay-outs from life insurances. Minus any debts. 

However, there is usually no tax to pay if: 

  • Your estate is valued at £325,000 or under. 
  • Or if you leave everything over £325,000 to your spouse, civil partner or a charity. 

If none of the above applies to you, then your estate will be taxed 40% on anything above the £325,000 threshold when you die. 

What are the exemptions? 

Spouses and Civil Partners 

Inheritance Tax is not charged on assets given to your spouse or civil partner (“the spouse exemption”). It is likely that none of the deceased’s spouse’s nil-rate band has been used, therefore the partner will be able to add the unused balance to their own, effectively doubling the threshold. 

Business and Agricultural property reliefs 

Additionally, there are two other principal reliefs from inheritance tax, namely Business Property Relief and Agricultural Property Relief. Both reliefs, subject to certain ownership conditions, can offer up to 100% relief from Inheritance Tax in relation to your business or agricultural property. These reliefs offer great scope for tax-planning, and we can advise you how to take full advantage. 

Gifts 

There are some gifts that if made during your lifetime or on your death are completely exempt from inheritance tax. Some are only exempt from if you make them during your lifetime.  

Gifts to your children and family can be made tax-free so long as you make the gift in advance and live for more than seven years after you have made the gift. That way your children and family will not have to pay inheritance tax on your gift when you die. However, it is important to note that any income gained from this gift could have other tax implications such as Capital Gains Tax. 

Other gifts, for example, to charities or political parties are also exempt from inheritance tax. 

What else can I give tax-free? 

  • Gifts that are worth £250 or less 
  • Wedding gifts; must be made before, not after, the wedding and has to be given to a child and is worth £5,000 or less; given to a grandchild and is worth £2,500 or less; or given to another relative or friend and is worth £1,000 or less. 
  • Gifts to help with living costs 
  • Gifts from your surplus income; paying into your child’s savings account, paying life insurance premium for your spouse or civil partner or paying grandchildren’s school fees. 

Specialist inheritance tax and planning solicitors  

Inheritance tax can be complicated and confusing. A specialist solicitor can help you plan your estate and make the best use of available tax reliefs, giving you peace of mind that your family will inherit with the minimum amount of payable inheritance tax.  

Our team of inheritance tax and planning experts are on hand to discuss your situation and provide you with practical advice. We offer a personal, bespoke service tailored to your individual needs. Please get in touch by calling 0117 906 9400 or email hello@gl.law 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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