Inheritance Tax is often considered unpopular, with many looking at ways in which they can legally reduce an Inheritance Tax bill. There are a number of exemptions and rules which can mean the IHT bill is reduced – or non-existent.
- Retirement warning: Your pension may be raided to cover COVID debt
It’s something which Tax Partner at Haines Watts, Jonathan Scott, has addressed.
Speaking to Express.co.uk, he explained that there are a whole host of ways in which a person is able to legally reduce an Inheritance Tax bill.
Among them is a rule which applies to pensions.
“Pensions can fall outside of your estate upon death,” he said.
However, for this to happen, the individual must ensure that they have not touched their pot.
“In order for them to fall outside of your estate the pension must remain untouched with no funds removed,” Mr Scott said.
Another way to reduce an IHT bill may be through gifts.
“Certain gifts made during your lifetime are exempt from IHT, these include those to a spouse, wedding gifts, and regular gifts out of income,” the tax partner said.
“By donating 10 percent of your death estate to charity, you can also reduce the overall percentage of tax charged on your death whilst giving money to a good cause.
“As a general rule, most gifts made more than seven years before death will escape tax.
Another option is to look into the rules on lifetime transfers and gifts throughout one’s lifetime.
Mr Scott continued: “Up to £3,000 may be given by an individual without an IHT charge, and this allowance can be carried forward for one year.
- Lifetime ISA rules have changed – how LISAs work for first-time buyers
“On top of your £3,000 allowance, small gifts not exceeding £250 per tax year per recipient are exempt.
“You can make a gift of £250 to any number of people in any given year.
“Wedding gifts up to the value of £5,000 may be made by a parent, with lower limits for others (£2,500 for grandparents and £1,000 for others).”
Usually, there is no Inheritance Tax to pay if the value of an estate is below the £325,000 threshold.
Alternatively, if everything above this threshold is left to a spouse, civil partner, a charity or a community amateur sports club, then there’s normally no IHT to pay.
There are ways to increase the threshold. An individual can give their home to their children or grandchildren, for instance, and this can raise the threshold to £500,000.
People who are married or in a civil partnership are able to have any unused threshold they may have transferred to their surviving partner’s when they die.
It means that the surviving partner can have a threshold which reaches as much as £1million.
Source: Read Full Article