It’s important to make the most of limiting potential liability when it comes to your Inheritance Tax (IHT).
IHT affects more people than ever, because the threshold has stayed the same since 2010, while house prices have continued to rise. This has shifted the focus of IHT being more of a very wealthy person’s problem to it affecting middle class families too.
What is the IHT threshold?
If your estate is valued at more than £325,000 then IHT is payable at 40%. Your estate is not just your property, it also includes assets including any vehicles you own, jewellery, art and antiques and your savings.
Thanks to the threshold staying at £325,000 for the last seven years, yet house prices soaring in many parts of the country, increasing numbers of people are realising that they will risk leaving loved ones with a potentially large IHT bill after they’re gone.
How to reduce IHT
We’ve put together some ways you can reduce IHT bills, and keep them to a minimum for your family and loved ones.
- ANNUAL EXEMPTION ALLOWANCE – Every tax year you can gift up to £3,000 to someone else free of IHT.
- INDIVIDUAL GIFTS – In addition to the annual exemption gifting, you can also give away as many small individual gifts as you like in any single tax year. They can only be worth up to £250 each, but they are allowed in addition to the £3,000 annual exemption. However, you can’t gift these to the person you’ve already given your annual exemption allowance to.
- GIFTS – You can give away sums of money as normal gifts from your income free of IHT. This could be as birthday or Christmas presents, for example. However, you can’t give away so much of your income that you can’t maintain your normal standard of living after making the gift.
- WEDDING GIFTS – You can give wedding or civil partnership gifts worth up to £5,000 to your child, half this amount to your grandchild or great grandchild and £1,000 to someone outside of your immediate family.
- POTENTIALLY EXEMPT TRANSFERS– While you can give away larger sums of money if you choose, you must live for a further seven years at least from the date of the gift for it to be IHT-free. Any gifts made between three and seven years before your death will be taxed on a sliding scale, which is known as ‘taper relief’.
- FAMILY HOME ALLOWANCE – For those with direct descendants, a relatively new allowance was introduced in April 2017. Called the residence nil rate band (RNRB), this allows a further reduction on IHT due from the sale of a family home. It started at £100,000 per person, rose to £125,000 for 2018, will rise again to £150,000 in 2019 and again to £175,000 in 2020. However, anyone without children, some business owners and estates worth more than £2 million will more than likely not be able to take advantage of this allowance.
- ESTATE TRANSFER – The IHT regulations for civil partners and married couples allow you to transfer your estate to your spouse free of IHT when you die. You can also transfer any IHT allowance that hasn’t been used. This means that when the surviving partner dies they could have an IHT allowance of up to £650,000.
Inheritance tax planning is complicated, particularly with changes announced by the government last year. Obtaining professional advice is always the best course of action. Bear in mind rules may continue to change, so you must regularly review your finances to make sure you’re making the most out of the IHT allowances and reliefs available to you.
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.
For more information or guidance with IHT, contact the team at Turner Little.
