The simplest way to avoid inheritance tax (IHT) is to make gifts while you are still alive.
Every tax year you can give away £3,000 of assets and they will not count towards your estate for IHT. If you do not use up the full exemption in one year you can carry it forward, but for one year only.
Gifts of up to £250 a person are also tax-exempt, but you cannot combine the two exemptions. You can also give £5,000 to your children as a wedding gift. Grandparents can hand over £2,500, and anyone else can give £1,000.
Gifts between husbands and wives are always IHT-free, as are donations to charities and political parties.
If a gift is regular, made out of income and does not affect your standard of living, any amount of money can be given away and ignored for IHT. However, you should take advice from a tax expert before you make regular gifts to ensure they will be acceptable to the Inland Revenue. What if you’ve won the lottery – what’s your regular income then?
You can make other tax-free gifts, called potentially exempt transfers, as long as you survive for another seven years. If you die within the seven years and the total value of the gifts is more than the IHT threshold, you can apply taper relief to any tax you owe. The tax on the gift reduces on a sliding scale if it was made between three and seven years before.
Better still, meet with a LSUK consultant who can ensure your will (where appropriate) contain up to date legal planning involving allowable IHT trusts for those of you who can’t afford to give away all of your assests while you’re alive - and that’s most of us.
Filed under: Wills
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