How To Avoid Inheritance Tax

Inheritance Tax (IHT) is now affecting a rapidly growing amount of citizens, many who would opt for their hard-earned assets to pass to their wife and kids when they die. However a large proportion of their wealth or estate, including the house, bank accounts, insurance policies not in trust or even family heirlooms, may have to be sold in order to meet the IHT liability on death if proper steps have not been taken to protect their wealth.

However, it continues to be legally possible to ensure that as much of your estate as possible stays out of Her Majesty's Revenue & Custom's (HMRC) clutches and that can be done using specialist, professional advice. Correct IHT planning involves passing as much of the proceeds of an estate as can be to chosen beneficiaries instead of the HMRC. It is also about maintaining flexibility and control over any of the clients wishes.

The simplest way to minimise inheritance tax (IHT) is to make gifts during your lifetime.

Each tax year you can give away 3,000 of assets that will not count towards your estate for IHT. If you don't use up the entire exemption in one year you can carry it forward, but only for one year. Gifts of up to 250 to an unlimited number of different individuals are also tax-exempt, but you cannot use both exemptions to give to the same person.

You can also give 5,000 to your children as a wedding gift. Grandparents can gift 2,500, and anyone else can give 1,000.

Gifts between husbands and wives are always free of IHT, and are donations to charities and political parties.

If a gift is regular, made out of income and does not affect ones standard of living, any amount of money can be given away and ignored for IHT. However, you should seek advice from a tax expert before you make regular gifts to make certain they will be allowed by the HMRC.

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 300,000 threshold, you are allowed to 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 previously.

If you cannot apply taper relief you add the gifts to your other assets and pay 40 per cent tax on the sum above the 325,000 threshold.

If you are worried that you won't survive for seven years, you are well advised to purchase a decreasing-term insurance policy that will cover any IHT bill.

Contact a professional Estate Planner now and make a Will and make sure it properly expresses your wishes and is planned correctly to avoid paying too much inheritance tax.

Transfer assets through the prudent use of lifetime gifts.

Create an IHT-efficient fund to help beneficiaries of the estate to meet the tax liability without reducing family wealth.