Inheritance Tax – how to make reductions

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.