Inheritance tax is currently paid on assets left in death over the personal threshold of £325,000, or £650,000 for a married couple so long as the first person to die leaves their entire estate to their partner.
Anything over the allowance is subject to a 40% rate of tax.
Currently the Office for Budget Responsibility (OBR) calculates that 4.7% of the population currently pays IHT. But with the rise in house prices, it is estimated that by 2018-19 this will have more than double to 10%.
But don’t despair, there are number of ways to legitimately reduce your bill with the help of experts at JW Hinks Lifestyle Services team.
Firstly the best way of avoiding the 40% charge is to reduce the value of your estate below the threshold.
Gift of £3000 a year can be given tax free, while gifts from income are also tax free. Giving to charity and political parties will also help reduce your tax bill.
However you should note that large gifts of money will stay on your estate valuation for seven years, another good reason to plan ahead.
Changes to the pension legislation also offer ways to reduce IHT bills. From April 2015, pension pots will no longer be subject to a 55% tax rate when passed on to a named individual when the saver dies. If they die before the age of 75, there will be no tax to pay on the inherited pension cash and if death occurs at 75 or above, the person inheriting the pension money will pay only their own marginal, or highest, rate of income tax. It is therefore worth considering transferring all non-pension assets to fund your pension. By shifting savings into a drawdown scheme, they will no longer be included in the final estate valuation, therefore avoiding IHT.
At JW Hinks, our Lifestyle Services team can provide a comprehensive inheritance tax planning service to ensure your wealth is protected. Contact us for more information.