HMRC collected close to £5 billion in Inheritance Tax (IHT) in 2016. If you take into consideration that only an estimated 45,100 estates were liable for IHT, that’s an average tax bill of £110,865 per estate.
There are many complicated rules that stipulate how much IHT is payable on an estate but, with some basic planning, you can drastically reduce the tax your loved ones will have to pay.
There are three main areas you can look at today to get started.
The nil rate band (NRB) per person is £325,000. From April 2017 there’s also an additional tax-free allowance of £100,000 if your estate includes a main residence. This means if you are married, you can pass on up to £850,000 without being liable for 40% IHT.
Many people start giving away their assets while they are still alive to avoid hefty IHT bills. This is a good strategy but there are a number of things to remember:
- The annual gift allowance is £3,000.
- You can gift £250 or less to any number of people without having to pay IHT and it doesn’t count towards the above gift allowance.
- You can make life-time gifts of any size if you wish but if you pass away within seven years of gifting, your estate will be liable for IHT (on a sliding scale).
Finally, you can donate a portion of your estate to a good cause that will result in a reduction on the tax percentage. If you donate 10% of your estate to a registered charity, it will reduce the tax rate from 40% to 36%.
Get in touch with Credence International if you would like to know more about Inheritance Tax.