There are a number of steps that you can take to reduce the 40% inheritance charge on the value of a deceased’s estate. If the deceased leaves his/her home to children or grandchildren in their will then the inheritance tax threshold is increased by £100,000 to £425,000. For married couples or civil partnerships any unused threshold is added to that of the surviving spouse/partner so the maximum threshold can be up to £850,000.
The amount of inheritance tax can further be reduced by:
- Giving away assets thereby reducing the value of the estate
- Transfers of up to £3,000 per year are exempt from inheritance tax
- Small gifts of up to £250 per person in any year are exempt
- Gifts of up to £5,000 in consideration of marriage are exempt
- Leaving assets to a charity in your will
- There are restrictions where more than 10% of the estate has been left to charity
- Holding assets that are exempt from inheritance tax
- Shares in unincorporated companies and unquoted securities or land or plant or machinery held and used by an unincorporated company or partnership qualify for business property relief and are exempt.
- Take out life insurance
- The inheritance tax is still payable but the insurance pays out on the death of the individual which can then be used to pay the tax.
Inheritance tax planning is a complicated area due to the many anti-avoidance rules so we recommend talking to a tax specialist.