Seven ways to reduce your Inheritance Tax Bill

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Having a will is one part of the story, but if that will is out of date then your family may still not be a in good position.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



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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.

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