Whenever Britons are polled on their most hated tax, without fail one tax in particular always finishes top – Inheritance Tax.  We all want to leave as much as we can after death to our loved ones, and the thought of the taxman taking a slice really gets our goat.

 However, there are several simple and efficient – and totally legal! – ways to reduce your inheritance tax liability and ensure that you leave as much as possible to your loved ones:

Make a Will

It’s a simple fact that failing to write a Will generally means you will end up paying more inheritance tax. Without a Will in place, your estate will be distributed according to the Government’s ‘Rules of Intestacy’, which often means your estate misses out on some of the available tax-free allowances, resulting in the taxman helping himself to a healthy chunk of it.

Understand the Thresholds

Inheritance tax is charged on estates once they pass £325,000 in value, at a rate of 40% on everything above that value. However, with some estate planning, even unmarried couples are able to pass their allowance over in full to their partner – in other words, they will have a £650,000 allowance to pass on the death of the second of them. If their combined estate ends up being worth less than that, there will be no tax to pay.

There is also a new additional tax-free allowance to bear in mind. The ‘residence nil-rate band’ allows you to pass on your family home to a ‘direct descendent’ (a group which actually includes various types of people not normally considered to be direct descendants!). For this year this additional allowance stands at £100,000, and will increase by £25,000 each year until tax year 2020/21 when it hits £175,000. As this allowance applies per person, it will mean a total tax-free allowance by 2020 of £500,000 per qualifying individual or £1 million for qualifying couples.

Lifetime Gifting
Even if you give something away, the taxman will still class it as being part of your estate if you die within seven years of making the gift.  It is their way of preventing people from handing over their home on their deathbed and avoiding inheritance tax. Live longer than seven years and there will be no tax to pay.

There are also certain ‘lifetime gift’ allowances which are free of tax. Everyone has a £3,000 limit each year, and what’s more this limit carries over to the following year if you don’t use it, to a maximum of £6,000.  On top of that you can give away £250 to each of any number of people every year, and further allowances are in place for wedding gifts to family members.

Another simple way to reduce your inheritance tax via your Will is to leave some to charity, as these gifts are free of tax, as are gifts to political parties(!)

 Write your life Assurance policy in Trust

An often unknown and hence overlooked opportunity to reduce inheritance tax is to ensure your Life Assurance policy is written to pay out into a Trust, as this essentially separates it from the rest of your estate for tax purposes.

Unless planning is put in place, a Life Assurance payout will pay into your estate and be added to the value of your estate for tax purposes before it is paid out to your loved ones, which also means they have to wait until after Probate is granted (normally ~( months) in order to receive anything.  By writing a policy ‘in Trust’ means it is viewed as being outside of your estate, ensuring that your loved ones get every penny, and there is no delay in your loved ones receiving it.

Is your estate tax-efficient?  Or are you going to leave an unnecessary financial gift to the tax-man on your death..?  Assistance is just a phone call away:

Heir Tight Wills helps clients put in place robust provisions and valid documents, to protect their loved ones and their assets both during their lifetime and after their death.  For a FREE Consultation to discuss writing or updating your Will & estate planning provisions, contact Rachael Rodgers on 0845 519 7585, or CONTACT US  via email.