How to reduce inheritance tax bill?
Inheritance tax is a tax charged to the estate of someone who has passed away.
WHEN DO YOU PAY INHERITANCE TAX?
Inheritance tax is owed at the end of the sixth month following the death of the decedent. HMRC may assess interest on any outstanding payments if you do not pay the inheritance tax before this date.
WAYS TO REDUCE INHERITANCE TAX:
Lifetime gifts: The majority of people do not leave their wealth to their heirs until they die. However, gifting money while you are still living may be more tax-efficient for IHT purposes. Transferring wealth while you are still living can have a profound impact on your life and that of your family. Giving money to a younger relative to supplement their pension can significantly increase their income when they retire.
Parents can give £5,000 to each child as a wedding gift.
Grandparents can £2,500 and anyone else can give £1,000 as a wedding gift.
Each year you can give away £3,000 and that gift will not be subject to IHT.
Gifts to charity or political parties of any size are also tax-free. Any amount of money can be given away and ignored for IHT if it is regular, originates from your income, and does not impair your standard of living. Gifts to charity or political parties of any size are also tax-free. Any amount of money can be given away and ignored for IHT if it is regular, originates from your income, and does not impair your standard of living.
Leave money to charity in your will: If you leave at least 10% of your estate to charity, you can lessen the rate at which inheritance tax is due. Inheritance tax is currently levied at 40% of the value of your estate over the £325,000 threshold. If you choose to give away 10% of your estate to charity, the tax rate drops to 36%. A lawyer can advise you if this is the best course of action in your specific situation.
Make use of pensions: One of the most tax-efficient methods to pass on your wealth is through a pension. Benefits left in a money purchase pension can be given as a lump sum or drawdown income to any beneficiary if you die before the age of 75, with no tax due. They will be taxed at the marginal income tax rate of the beneficiaries after they reach the age of 75.
The money will be IHT-free as long as they are in drawdown. This means you can leave your pension to your children, who can then pass it on to their children, who can then pass it on to their children's children, and so on, potentially passing pension money down the generations.
Make a will: In their wills, spouses and civil partners can transfer assets to each other tax-free, saving money on inheritance tax. Inheritance tax may be due on your estate if you die intestate (without a will).
Put asset into trust: If you want to pass on your assets, investments, or property in a tax-efficient manner, trusts can be quite handy. If you put assets in a trust, they can be excluded from your estate for the purposes of inheritance tax. As a result, trusts can help you lower your inheritance tax burden while also protecting your valued assets.
Consider Cheylesmore Chartered Accountants to get more information about inheritance tax.