There are two things that are certain in life – death & taxes. Unfortunately, with Inheritance Tax, the two can hit you hard at the same time. There are many ways to avoid or minimise the effects of inheritance tax and reduce the amount that your heirs have to pay to the taxman, and the Telegraph has summarised some of your options:
- Give to your spouse – inheritance by spouse is not subject to IHT.
- Nil-rate band – no tax is paid on the first £275,000 of your estate, rising to £285,000 next year and £300,000 the year after. Carefully written wills should help you make the most of the nil-rate band (I’m hoping to post a couple of articles on wills in the near future).
- Give your money away – you can give up to £3,000 to any one individual each year (and it would seem the allowance rolls over to the next year if unused).
- Potentially Exempt Transfers – you can make a gift of any amount to anyone, and providing that it is done at least 7 years before your death, and that it can be proven that you gain no benefit from it once given (e.g. you couldn’t give your house to your children but continue to live in the house).
- Spend your money – go on, enjoy it, sod the kids!
- Donate to charities – annoy the kids even more, make a donation to a charity. Any amount given to a charity or political party is exempt.
- Invest in a pension – one of the most tax efficient ways to avoid IHT.
Read more on ways to avoid inheritance tax.