Residential Property

How to Avoid Inheritance Tax

The dramatic rise in house prices over the past five years, especially in London and the South East of England has seen an increase in the number of people who will die leaving an inheritance tax bill. Once the curse of the gentry, with large country piles filled with art and a ‘little flat’ in town, almost anyone can now be subject to inheritance tax.

If you would rather leave your loved ones the bulk of your estate as opposed to the tax man, then read on to find out how you can avoid paying inheritance tax on your property and assets.

When do I have to pay inheritance tax?

If the value of your estate exceeds £325,000, then you will be liable to pay inheritance tax.

What are inheritance tax rates?

You will pay 40% on the value of your estate over the £325,000 threshold.  For example, if you die leaving assets of £600,000, the first £325,000 is tax free, but you will pay 40% on the remaining £275,000, totalling £110,000.

Can I gift my money away in my lifetime?

Yes, and this is the simplest way of avoiding landing the beneficiaries of your will with a crippling tax bill.

You can give cash or gifts worth up to £3,000 in total each tax year and these will be exempt from inheritance tax when you die. However, if you gift greater sums of money to someone, for example, your children, and die within seven years of making the gift, your estate will have to pay inheritance tax on the amount.

Make sure you check with a solicitor as to whether or not you will have to pay Capital Gains Tax on any gifts you make.

Should I set up a trust?

Trusts work well for inheritance tax purposes.  If you put property and assets into a trust, they are no longer part of your estate and are therefore not subject to inheritance tax.

What is a trust?

A trust is a relationship whereby property is held by one party for the benefit of another (known as beneficiaries). A trust is created by a settlor, who transfers property to a trustee. The trustee administers that property for the trust's beneficiaries.

Can my life assurance policy pay the inheritance tax bill?

Yes.  To do this effectively, take out a life assurance policy on both you and your spouse’s life with the proceeds payable only on the second death.

The amount of cover should be equal to the expected inheritance tax liability. Make sure you put the policy in trust so it stays out of the estate.

Trusts, gifts and inheritance tax can be complex.  By speaking to an experienced private client solicitor, you will ascertain the advice you need to make the best decisions for your family.


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