Inheritance tax: Expert provides tips on avoiding hefty bill
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As more people continue to get caught in the inheritance tax (IHT) net, it is important to note there are a few ways to mitigate losses. Figures from HM Revenue and Customs (HMRC) revealed inheritance tax receipts hit £2.4billion in the three months to July 2022.
This is a sharp increase of £300million over the same period of time from the year before which suggests more households.
As a result, taxpayers are looking for ways to slash their bills in order to avoid large sums of money towards inheritance tax.
With rising property prices bringing even modest homes into the IHT net, careful planning may be required to ensure that loved ones aren’t left with nasty surprises when one passes on their estate.
It’s impossible to predict what the exact value of someone’s estate will be.
However, it’s worth taking the time to understand the overall position their family will be in.
Jeannie Boyle, chartered financial planner at EQ Investors offered three tips on how Britons can “reduce the impact” of IHT and cut costs.
She explained planning ahead will give people peace of mind their loved ones will receive what they want them to and “reduce the impact of inheritance tax”.
Make a Will and Lasting Power of Attorney
She said: “If you do not make a will then your estate will be distributed according to the rules of intestacy.
“Remember that these rules do not recognise unmarried partners: if you’re not married or in a civil partnership, then your partner won’t receive anything from your estate (that isn’t jointly owned by them) unless this is specified in your will.
“You should review your will if your circumstances have changed: for example, marriage can invalidate an earlier will.”
Britons can help their family by sharing their plans with them. People may even find that they suggest something different.
Setting up a Lasting Power of Attorney at the same time will ensure someone they know can deal with their affairs if they lose capacity.
Make use of exemptions
There are several allowances for gifts which are automatically exempt from IHT.
Every year individuals can gift £3,000. This allowance can be carried forward one tax year if unused.
People can make unlimited small gifts of £250.
Gifts between spouses or for the maintenance of children, ex-spouses or dependent relatives are also exempt.
Gifts to people getting married are exempt: up to £5,000 for your child, £2,500 for your grandchild or great grandchild, and £1,000 for anyone else.
Gift to a charity
Many people choose to make charitable gifts in their wills.
Although not always considered part of estate planning, such gifts can reduce the inheritance tax (IHT) rate on death from 40 percent to 36 percent if used in the correct way.
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