1) Make a will
Making a will is relatively straightforward and inexpensive, and there’s really no excuse for not doing it. You may think you don’t need to do anything as you want all your assets to pass to your spouse but that won’t necessarily be the case. If you die intestate (that is, without making a will) then other family members may well benefit from your estate whether you want them to or not. So, make a will – and make sure you keep it up to date.
2) Start to give money away
Many people still don’t know that they can make gifts out of regular income. This can be an excellent method of passing wealth on to the next generation and providing the gifts pass three key tests they will not incur an IHT liability. The gifts must be made out of income (as opposed to selling assets to fund them); they must be made on a regular basis and they must not reduce the donor’s standard of living.
3) Make your gifts sooner rather than later
Any gift given more than seven years before the death of the donor is free of IHT – a good example of the need to plan early. Remember though, that the ‘gift with reservation’ rules apply: if you are giving something away you cannot continue to enjoy the benefits of it. For example, you cannot give your house to your children and continue living in it.
4) But some gifts are more equal than others
Certain gifts are treated differently, and in this case the ‘seven-year rule’ doesn’t apply. Both parents can give up to £5,000 to their children when they marry, and annual gifts of up to £3,000 can also be given. If you cannot give large sums of money, then it makes sense to make use of these smaller gift allowances.
5) Make use of trusts
Many people believe that trusts are highly complicated and are only to be used for multi-million-pound estates. Far from it. They can be simple and relatively inexpensive, yet still allow you to transfer wealth out of your estate and save IHT into the bargain. Yes, you’ll need specialist advice but the potential savings in tax will almost certainly cover the cost of that advice many times over.
As we stated above, transferring wealth to your intended beneficiaries requires careful planning, but if that planning is done properly then the savings made in Inheritance Tax can be substantial.
Specialist help is needed in many areas and we are always happy to advice clients in what can be a very complicated area. However, with the right advice there’s no reason why you can’t transfer the wealth you want to transfer – while continuing to enjoy the life you deserve.
Can we make Inheritance Tax simpler? Read our thoughts on simplifying Inheritance Tax here.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article).
The content of this blog is for general information only and should not be considered advice. Information is based on our current understanding of tax legislation. Tax treatment depends on individual circumstances and may be subject to change in the future. Professional advice should always be sought prior to making any decisions or taking any action. All details were correct at the time of writing.
Reference – BL039 – Oct – 18