Inheritance tax is a tax imposed on the estate of a deceased person. It is paid by the executor of the estate before any assets are distributed to the beneficiaries. Inheritance tax can be a significant burden for those who are left with an estate to manage, so it is important to understand how to reduce your inheritance tax liability. Here are some tips on how to avoid inheritance tax.
1.Make Gifts
One way to reduce your inheritance tax liability is to make gifts during your lifetime.You can give away up to £3,000 each year without incurring any inheritance tax liability. You can also make larger gifts, such as wedding gifts of up to £5,000 for a child, or up to £2,500 for a grandchild or great-grandchild. These gifts are exempt from inheritance tax.
2.Use Trusts
Trusts are a useful tool for reducing inheritance tax liability. A trust is a legal arrangement in which 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, as any assets held in trust are not included in the deceased's estate and therefore not subject to inheritance tax.
3.Make Use of Exemptions
There are certain exemptions from inheritance tax that you can take advantage of. For example, if you leave your home to your children or grandchildren, you may be eligible for an exemption from inheritance tax. Other exemptions include leaving money to charities and leaving money in trust for disabled people.4.Take Advantage of Tax Reliefs
In addition to exemptions, there are also various tax reliefs available that can help reduce your inheritance tax liability. For example, if you leave money in trust for your children or grandchildren, you may be eligible for a reduced rate of inheritance tax.There are also reliefs available for business owners and farmers.
