How to sidestep Inheritance Tax as average bills climb over £200,000

Inheritance tax labelled ‘unfair’ and ‘cruel’ by expert

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The average bill that families must now face when a loved one passes away is now £209,502 according to the figures from 2018/19.

This is up by six percent from £197,521 the year before.

Only 3.7 percent of deaths in the UK resulted in an Inheritance Tax bill in 2018/19, but this is expected to rise following the Chancellor, Rishi Sunak, deciding to suspend tax-free allowances for five years as the UK economy looks to recover from Covid.

Inheritance Tax is paid on the estate of someone who has died if its total value surpasses £325,000, after which point it is paid at 40 percent.

The tax is only levied on the value of the estate above £325,000.

Sean McCann, chartered financial planner at NFU Mutual, said: “Inheritance Tax is feared by many but paid by relatively few.

“But [for] those with the average bill in excess of £200,000 it can make a significant dent in a family’s wealth for those that do get caught in the net.”

Despite government attempts to raise more funds from this tax, there are still ways for those with assets above the tax-free allowance to reduce future bills.

NFU Mutual has shared four simple tips that could save people thousands of pounds:

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Don’t touch your pension until you have to

“The first and most simple measure people can take is not to withdraw money from their pension until they need to.

“This is because any money that is left in someone’s pension fund when they die can usually be passed on free of Inheritance Tax.

“People are therefore advised to make it the last thing they spend.”


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Make gifts

“Another great way to sidestep Inheritance Tax can be by reducing the value of an estate by giving it away during one’s lifetime.

“People can give away up to £3,000 tax-free each year and this can be rolled over, so if people don’t give away the full £3,000 they won’t have missed out.

“People can also make an array of gifts which can reduce Inheritance Tax.

“They can make tax-free gifts on marriage to children of up to £5,000, to grandchildren of up to £2,500 and anyone else for up to £1,000.

“Gifts from regular income can also be made, provided they are regular and don’t interfere with one’s standard of living.

“For most other gifts, the giver needs to survive for seven years past the date it was made otherwise it will be considered part of the estate and be liable for Inheritance Tax.”

Take out life insurance

“Life insurance policies won’t reduce the inheritance bill but they can make it much easier for people to bear heavy taxes.

“They can provide big lump sums to families which can go towards covering the bill.

“People should be sure to write it into a trust, however, so that the lump-sum isn’t considered by the taxman as part of the estate and therefore liable to be taxed.”

Use business reliefs

“If you leave a qualifying business behind then you may be able to pass it on tax-free because of Business Property Relief (BPR).”

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