Inheritance tax is a tax imposed on the estate of a deceased person. In the United Kingdom, inheritance tax is charged at 40% on the value of the estate above a certain threshold. This can be a significant burden for those who are left to deal with the estate of a loved one. Fortunately, there are ways to reduce or even avoid inheritance tax altogether.
Gift Allowance
One of the most common ways to reduce inheritance tax is to make use of the gift allowance.This allows you to give away up to £3,000 per year without incurring any inheritance tax. This can be done in one lump sum or spread out over multiple gifts throughout the year. It is important to note that this allowance can only be used once every tax year and any unused allowance cannot be carried over.
Spousal Exemption
Another way to reduce inheritance tax is to make use of the spousal exemption. This allows you to transfer any assets you own jointly with your spouse or civil partner without incurring any inheritance tax.This includes property, investments, and other assets. It is important to note that this exemption only applies if your spouse or civil partner is a UK resident.
Trusts
Trusts are another way to reduce or avoid inheritance tax. A trust is a legal arrangement where assets are held by one or more trustees for the benefit of another person or persons. Trusts can be used to protect assets from inheritance tax by transferring them into a trust before death.This means that the assets will not be included in the deceased's estate and therefore will not be subject to inheritance tax.
Life Insurance
Life insurance can also be used as a way to reduce or avoid inheritance tax. Life insurance policies can be taken out with the intention of paying off any inheritance tax that may be due upon death. The proceeds from the policy can then be used to pay off any outstanding taxes, thus reducing or eliminating any inheritance tax liability.Inheritance Tax Planning
Inheritance tax planning is another way to reduce or avoid inheritance tax. This involves taking steps such as making gifts, setting up trusts, and taking out life insurance policies in order to reduce or eliminate any potential inheritance tax liability.It is important to note that this should only be done with professional advice as there are strict rules and regulations that must be followed. Inheritance tax can be a significant burden for those who are left to deal with the estate of a loved one. Fortunately, there are ways to reduce or even avoid inheritance tax altogether. By making use of gift allowances, spousal exemptions, trusts, life insurance policies, and inheritance tax planning, it is possible to reduce or eliminate any potential inheritance tax liability.
