Inheritance tax: Expert provides tips on avoiding hefty bill
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
The older generation may be considering whether to pass on some of their wealth to younger generations now to help ease the pain of the cost of living crisis. It could even reduce or wipe out the need to pay inheritance tax to HM Revenue and Customs (HMRC) if done properly. Ian Dyall, Head of Estate Planning at Evelyn Partners, explained how to get it right.
The Chancellor’s decision to freeze the threshold at which inheritance tax is paid will lead to around £1.7billion more for the taxman in the year 2027 to 2028, the Office for Budget Responsibility predicts.
Inheritance tax is charged at 40 percent on assets and cash above the £325,000 threshold – with some exceptions – but there are ways to reduce one’s tax bill.
Ian Dyall, from Evelyn Partners, said: “Sharing wealth and helping loved ones financially is becoming even more of a priority as demands mount on the budgets of young families.”
“Passing on wealth during their lifetime also rewards the giver with the satisfaction of seeing the benefits being enjoyed.”
At Christmas, the majority of casual monetary gifts won’t fall foul of HMRC rules and allowances.
However, more generous cash gifts could cause tax issues for the recipient if not handled properly.
Mr Dyall added: ‘While it can in addition bring tax advantages, lack of familiarity with the rules could also be punished with tax penalties.
“As accumulators of wealth decide to pass on larger amounts during lifetime, whether this is announced as a festive gift or not, more care is required to make sure the Treasury doesn’t get an IHT present further down the line.”
Santander’s new savings account offers 4% interest plus £20 cashback [ALERT]
Santander has increased interest rates on savings accounts [UPDATE]
Axe still hangs over state pension triple lock but ‘We’ll fight for it [WARNING]
‘Real life Del Boy’ quits warehouse job for side hustle earning £200k [INSIGHT]
However, he highlighted gifts that are tax free:
- Gifts up to any value between UK domiciled spouses and civil partners are free from tax
- Gifts for the National Benefit, such as gifts to museums and libraries etc, are all free from tax too
- Gifts to Charity of any value are also free from tax and may even qualify you for an element of income tax relief through Gift Aid
- Total gifts made by you in a tax year total less than £3,000. You can also carry forward any unused £3,000 allowance from the previous tax-year, making financial gifts of up to £6,000 possible this Christmas
- Small gifts of up to £250 can be made to any number of people in the tax year, provided the total to any one person does not exceed £250. If it does, this exemption does not apply and all gifts would start to use up the aforementioned £3,000 allowance
- Gifts out of regular income that are part of normal ongoing expenditure can also be made (see below for more detail)
- Money can also be given as a gift tax free in the event of a marriage or civil partnership amounting to £5,000 from each parent, £2,500 from each grandparent and up to £1,000 from any other person. These would not use up any of the other allowances.
Larger gifts can be made and will not be subject to inheritance tax as long as the donor then survives for seven years, during which time such gifts remain ‘potentially exempt transfers’.
Mr Dyall explained: “If the donor dies within seven years, the nil-rate band is reduced by the value of the gifts and tax on assets above the NRB will be due at up to 40 percent.
“If a gift does become liable for IHT, it is the recipient who will have to pay, and they may not have the resources to meet a surprise tax bill when it arrives, possibly having spent the money.”
Britons should seek specialist tax advice if they have any concerns as inheritance tax is a complicated subject.
Britons could save money on inheritance tax by:
- Making a will
- Using gift allowances
- Making regular gifts
- Leaving a legacy – give to charity
- Using one’s pension allowance
- Setting up a trust
- Investing in companies qualifying for Business Property Relief (BPR)
- Investing in an AIM IHT ISA
- Backing smaller British businesses
- Investing in commercial forestry
- Spending it.
Source: Read Full Article