Spare your heirs from IHT

Families were charged £3.4bn in inheritance tax in 2013-14, a six-year high according to HM Revenue & Customs.

The 2014-2015 inheritance tax (IHT) threshold is £325,000 per person, doubling to £650,000 for a married couple. Anything over this limit is subject to tax at 40%. However, with the rise in the value of property, it’s easy to see how many people are now finding they have a greater liability than they first thought. Fortunately, expert planning can legitimately mitigate this tax, enabling your assets to pass as you intended.

Here are some ways to reduce IHT liability:

Plan ahead. You can give your assets away and, if you survive for seven years, they will not be considered for IHT purposes. You can also take out life insurance to pay the inheritance tax that would be due if you don’t live for seven years.

Consider marriage. Because assets inherited from a spouse are IHT exempt, the nil-rate band (or unused part of it) is, in most cases, passed on to the surviving spouse or civil partner. This means that a qualifying couple’s estate up to £650,000 is exempt.

Write a will trust. Set up a discretionary will trust to earmark money for your children, rather than giving it straight to the surviving spouse – so it won’t count as part of the estate. The appointed trustee will control the assets and can arrange for the spouse to receive income from it, if needed.

Make use of annual exemptions. You can make gifts of up to £3,000 (in total, not per person) plus any number of gifts, up to £250, per other recipient.

Weddings. Before the wedding day, each parent of a bride or groom can give up to £5,000; each grandparent or other relative can give up to £2,500 and any well-wisher can give £1,000.

Make gifts out of your surplus income. If you’re in the fortunate position to be able to do so, consider making regular gifts under the ‘surplus income exemption’.

Everyone’s circumstances are unique and tax planning is a highly complex area; it’s essential to take professional advice.

It is important to take professional advice before making any decision relating to your personal finances. Information within this blog is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.

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