Inheritance tax is a tax that is imposed on the estate of a deceased person. It is a complex and often confusing area of taxation, and it is important to understand the rules and regulations in order to ensure that you are not liable for any unnecessary taxes. In the UK, inheritance tax is charged at 40% on the value of an estate over £325,000. This means that if you are the beneficiary of an estate worth more than this amount, you may be liable for inheritance tax. Fortunately, there are ways to avoid inheritance tax.
Here are some tips to help you reduce or even eliminate your liability for inheritance tax:
Gift Exemption
One way to avoid inheritance tax is to make use of the gift exemption. This allows you to give away up to £3,000 per year without incurring any inheritance tax liability. This can be done in one lump sum or in multiple gifts throughout the year. It is important to note that gifts must be held for at least seven years before they are exempt from inheritance tax.Spousal Exemption
Another way to avoid inheritance tax is to make use of the spousal exemption.This allows you to transfer assets between spouses without incurring any inheritance tax liability. This can be done during your lifetime or upon death. It is important to note that this exemption only applies if both spouses are UK residents.
Trusts
Trusts can also be used to avoid inheritance tax. A trust is a legal arrangement whereby assets are held by trustees on behalf of beneficiaries.The trustees have a legal obligation to manage the assets in accordance with the wishes of the settlor (the person who sets up the trust). Trusts can be used to protect assets from inheritance tax, as any assets held in trust are not included in the settlor's estate for inheritance tax purposes.
Lifetime Gifts
Lifetime gifts can also be used to reduce or eliminate your liability for inheritance tax. These are gifts made during your lifetime, rather than upon death. Any gifts made more than seven years before death are exempt from inheritance tax, so it is important to plan ahead if you wish to make use of this exemption.Inheritance Tax Planning
Inheritance tax planning can also help you reduce or eliminate your liability for inheritance tax.This involves making use of various exemptions and allowances available under UK law, such as those mentioned above. It is important to seek professional advice when undertaking any form of inheritance tax planning, as it can be a complex area. Inheritance tax can be a confusing and complex area of taxation, but with careful planning it is possible to reduce or even eliminate your liability for this type of tax. By making use of the exemptions and allowances available under UK law, such as gift exemption, spousal exemption, trusts and lifetime gifts, you can ensure that your estate is not subject to unnecessary taxation.
