Seven ways to reduce your Inheritance Tax Bill

Print Friendly

Inheritance tax is often called a ‘voluntary tax’ because with a little forward planning for our demise, it is one tax that can be significantly mitigated, if not avoided altogether – and it is perfectly legal to do so.

Many people regard IHT as a tax for the rich, but as house prices have risen far faster than the nil rate threshold has, more of us are being pulled into the IHT net, and it means that some of us will pay 40% tax for the first time after we have died. If you do not want to be one of them, make sure you do something about it before it is too late.

The Chancellor announced a rise in the IHT allowance for couples with children in the Summer Budget, which will reach £1m by 2020, but you will have to wait until 2017 before the stepped increase even starts, and it may not even apply to you. It is designed to allow families to pass their main residence to the next generation without an IHT charge against it, so if you have no children then you cannot access this increase and your IHT threshold will remain at £325,000 for an individual, or up to £650,000 for couples.

But why wait to benefit from a politician’s largesse? Here are seven ways that you can reduce or remove your IHT bill right now:

  1. Make sure you have a valid will

The number of people who die without a will is astonishing – almost 50% of us leave this mortal coil thinking everything that we could have done for our family has been done, but fail to leave this vital legal document behind.

That figure – from Will Aid – shows just how misunderstood the system is, as many people think that dying without a will does not really matter and that our families will inherit everything as we had hoped. That is not correct, in fact not having a will in place effectively leaves the Treasury in control of your estate on death, specifying who receives what, and could result in the Government pocketing hundreds of thousands of pounds of your hard-earned money.

So if you do not have a will, get one fast.

  1. Update your will

Having a will is one part of the story, but if that will is out of date then your family may still not be a in good position. Any time something significant changes in your life – a birth, a death, a marriage, a divorce, an inheritance, a lottery win – you should update your will so that change is reflected in your wishes. Failing to do this could leave behind a family war, creating animosity at a time when loved ones are grieving, and leaving the lawyers getting more of your money than anyone else. Who wants that as a legacy?

  1. List all of your assets and how much they are worth

You do not need to spend hours over this – although the more accurate you are the better – but making a good estimate of what all of your assets are worth will give you the best idea about what you need to do in terms of IHT planning. For example, you may have a family home, a car, paintings, savings, investments, insurance policies that pay out on death and so on – each of these would need to be added as they make up your estate on death. You also need to take into account debts, such as your mortgage, credit cards, outstanding credit agreements. You will probably be surprised how much you are actually worth when you calculate everything.

  1. Find out what your options are

If you try to ‘go it alone’ when it comes to wills and IHT, the chances are you will be leaving your family with a big mess to sort out, and probably a big bill to boot. Using an expert to find out what your options are mean you could save your family a lot of arguments and potentially hundreds of thousands of pounds – which will leave them much more financially secure. Silversurfers has partnered with personal finance website MyMoneyDiva and Savings Champion to offer you a free guide if you have more than £250,000 in investable assets. You can download the free IHT Guide here.

  1. If you have a life insurance policy, write it into trust

Taking out life insurance is a common way for people to help their families after they have died, by giving them a lump sum to help with the expenses that either they helped with in life, or that immediately follow on death. But if you do not have that life policy written into trust, then this money will also fall within your estate for IHT purposes so it will be less effective than you hoped and could create an IHT bill for your loved ones.

Ask your life insurer about writing the policy into trust – most will do this, and many will do it for free too – and you can legitimately take this money out of your estate on death.

  1. Use your disposable income to make regular gifts

If you have money left over from your pension or other income each month, then providing you will not be changing your quality of life as a result, you can make regular gifts to help reduce your estate’s value. These are considered to be outside the IHT net – but the caveat is very specific so do not make gifts that you cannot reasonably afford.

  1. Survive any bigger gift by seven years

If you were to make a substantial gift to someone then you would expect that money to be outside of you estate for IHT purposes, right? Wrong! If you make a large gift and survive that gift by seven years, then it would be outside of the estate. But, if you died within three years of making the gift, it would still be considered part of your estate as far as the taxman is concerned. Dying within four to seven years means there is a scaled reduction in the amount of IHT due. It is not straightforward, but you can find out more information in the free IHT Guide here.

By Alison Steed



The contents of this article are for reference purposes only and do not constitute financial or legal advice. Independent financial or legal advice should be sought in relation to any specific matter. Articles are published by us without any knowledge or notice of the circumstances in which you or anyone else may use or rely on articles or any copy of the information, guidance or documents obtained from articles. We operate and publish articles without undertaking or accepting any duty of care or responsibility for articles or their contents, services or facilities. You undertake to rely on them entirely at your own risk, and without recourse to us. No assurance of the quality of articles is given or undertaken (whether as to accuracy, completeness, fitness for any purpose, conformance to any description or sample, or otherwise), or as to the timeliness of the publication.

The following two tabs change content below.

Alison Steed

Alison is a highly-respected commentator on personal finance issues and an accomplished writer, editor and broadcaster, having worked on The Daily Telegraph’s personal finance desk for nearly seven years from 2000 to late 2006, becoming the deputy personal finance editor in 2004. After going freelance in late 2006, she has continued to maintain a notable presence in the national press and on both television and radio, writing for The Times, The Sunday Times, The Daily and Sunday Telegraph, the Daily and Sunday Express and The Sun. She has also made a number of appearances on TV and radio, including numerous appearances on Sky News, the Jeremy Vine Show on BBC Radio 2, and was the financial journalist behind the hit Channel 4 personal finance show Superscrimpers for the first five series. She has won eight awards for her writing, including Personal Finance Journalist of the Year from the Association of British Insurers four times in a row, which is still a record. She has also received the Living Legend award from Help the Aged in recognition of the campaigning work she has done on the issue of the mis-treatment of older people who need long-term care.

Not a member?

Join the silversurfers community today! It's free, easy to do, and is packed full of features and amazing offers!

Join the community!
Click here if you have forgotten your password
22nd Jul 2015
Thanks for voting!
Would I be able to give my daughters shares in my house. There is no mortgage.
Alison Steed
22nd Jul 2015
Thanks for voting!
Hi Mudga, there are some rules around passing your property on to your children which relate to the possible need for the home to be sold for care fees in the future, so the answer is yes you could pass some of your property to your children, but the question then is should you? If you want to, there are a number of ways you can do it.

The best thing you can do is take some advice about the best way to do this, as depending on your state of health, your age etc the local authority could claim you only passed the share of the home on to prevent it being sold to pay for care fees. This may not have been your intention at all, of course, but it is not an easy one to prove.

A good solicitor should be able to point you in the right direction though. Hope that helps.

Community Terms & Conditions

Content standards

These content standards apply to any and all material which you contribute to our site (contributions), and to any interactive services associated with it.

You must comply with the spirit of the following standards as well as the letter. The standards apply to each part of any contribution as well as to its whole.

Contributions must:

be accurate (where they state facts); be genuinely held (where they state opinions); and comply with applicable law in the UK and in any country from which they are posted.

Contributions must not:

contain any material which is defamatory of any person; or contain any material which is obscene, offensive, hateful or inflammatory; or promote sexually explicit material; or promote violence; promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or infringe any copyright, database right or trade mark of any other person; or be likely to deceive any person; or be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence; or promote any illegal activity; or be threatening, abuse or invade another’s privacy, or cause annoyance, inconvenience or needless anxiety; or be likely to harass, upset, embarrass, alarm or annoy any other person; or be used to impersonate any person, or to misrepresent your identity or affiliation with any person; or give the impression that they emanate from us, if this is not the case; or advocate, promote or assist any unlawful act such as (by way of example only) copyright infringement or computer misuse.

Nurturing a safe environment

Our Silversurfers community is designed to foster friendships, based on trust, honesty, integrity and loyalty and is underpinned by these values.

We don't tolerate swearing, and reserve the right to remove any posts which we feel may offend others... let's keep it friendly!

More Wills

3 pitfalls that make your Will legally void NMW-Silversurfers-article-img
We all know how important it is to make a Will to ensure loved ones are cared for after our death...
5 Important Facts About Wills and Probate Affectionate elderly couple in a business meeting holding hands as they discuss a proposal put forward by their broker
Having a Will is essential and ensures the people you want to inherit your estate become the...
What you need to know about Will Trusts…. silver_surfers_900 (1)
Writing our Will is something that we all know we should do but for many reasons just don’t seem...
Six top tips for planning your funeral Silversurfers GC article 2
Plan for the future We’ve already outlined in our previous article how the cost of dying...
The rising cost of dying in the UK in 2015: plan now for tomorrow 01-03-Golden-Charter-Banner-Designs_Silver_Surfers_900x500_v3
“ In this world nothing can be said to be certain, except death and taxes”, or so the famous...
5 Reasons to Make a Will wills-woman-writing-optimised
ADVERTISEMENT FEATURE Setting aside the time to make a Will is one of the kindest things you...
Where there’s a Will ... there’s peace of mind Last Will
We’d all like to reach our retirement years and be in a position to relax, enjoy life, see...
Writing a will Will-writing
If you have dependents, you need to have a will. If you’ve never got around to making a will...
What to do when it's time to sort out your will bigstock-Last-Will-and-Testament-44111440
If you want to be able to ensure that your loved ones receive the things you have chosen for them...
Leaving a legacy in your will bigstock-Time-to-give-charity-giving-fi-21902837
It's natural that, as you get older, you begin to think about the legacy that you will leave...
Who to choose when writing your Will Portrait Of Family In The Park
Once you have decided to put your Will in place, and have chosen your Executors and...
The Value of a Small Estate Piggy Bank Savings Male
It is understandable to think that if we don’t have “very much”, or perhaps don’t have...