Are you worried about the possibility of leaving your children with a large inheritance tax (IHT) bill? Taking action now could avoid this and put your mind at rest. At Turner Little we can help you come up with a plan to minimise your estate’s IHT, and to get you started, we’ve put together six things you can do straight away.
- Learn the rules that govern giving money away
Money given away by you at least seven years before you pass away is exempt from IHT. While this sounds like a good way to reduce the bill you leave behind, it’s not easy to control. For example, you could live longer than you expect, or you could come across a situation where you need access to the money yourself.
You can’t give assets and money away to someone else and continue to use them. So, if you gift your car to your child, you can’t continue to drive it. Similarly, it’s not possible to give away your home and then live in it.
The rules and regulations surrounding giving money away are relatively complicated, but individuals can give away up to £3,000 every tax year without it being liable. Usefully, if you don’t give your £3,000 away one year, you can add the amount forward and give £6,000 away in the next tax year.
This is your personal allowance, not the allowance allowed per child. If you have more than one child, then you must split it between them. Below we’ll list some other ways you can give money away, in addition to this amount.
- Give cash as a wedding gift
You can give your child £5,000 if they are getting married, and it won’t be liable for IHT. You could also give a grandchild or great-grandchild up to £2,500 if they are getting married. Anyone else who is getting married can receive £1,000 from you IHT-free. It’s imperative, of course, that they actually do get married or there is no tax-waiver status on the gift.
- High earner gifts
People who have a lot of money can give away a chunk of their income, as long as they can prove it doesn’t impact their lifestyle. An example of a situation where this could happen is someone with an income whose partner dies and leaves them a large amount of money. They could give this away and not have it liable for IHT as it is proven to make no difference to their current lifestyle.
- Paying support/maintenance to dependents
It’s allowed to give gifts to ex-partners, whether your ex-spouse or ex-civil partner, for their maintenance. You can also give gifts to relatives who are financially dependent on you, whether this is an elderly parent or a more distant relative.
You can also gift money to your children if they are in full-time education and the money pays towards the cost of their maintenance or education. This can include paying off student loans.
- Always keep a gifting record
While you’re not legally obliged to keep a record of gifts, it will make life easier for those left behind when you die. HMRC may well want to review exactly what you gifted to whom, so it can calculate how much IHT your estate is liable for.
If your estate is worth less than the threshold (currently £325,000 for an individual and £650,000 for a couple), then you can give away as much as you like to whoever you choose. Only estates worth more than this threshold are liable for IHT.
- Give money to charity
The Inheritance Tax rate is 40% on any part of your estate above the thresholds. However, charity gifts, including to universities, museums, community sports clubs or even political parties (as long as the organisation meets the prescribed criteria) are free of IHT.
If you gift more than 10% of your estate to charities as outlined above, then you could reduce the IHT rate by 4%.
To talk through how best to manage your estate for IHT purposes, get in touch with the team at Turner Little. We can help with probate, administration and much more.
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.
