1. Make a Will
Making a will is a crucial part of planning your estate, as it is the main way you can ensure that your assets are distributed according to your wishes. If you do not make a will, your estate will be distributed in accordance with IHT rules and may be subject to tax that could have otherwise been avoided.
If you require any assistance in the writing of your will, one of our advisors at Thornton & Baines will be happy to give you guidance over a free Zoom call. Our contact details can be found here: https://inheritance-tax.co.uk/area/inheritance-tax/
For more information on what we do, please see: https://inheritance-tax.co.uk/
2. Stay below Inheritance Tax Threshold
In the tax year 2020/21, the nil rate band for individuals is £325,000. This band is transferrable to a spouse or civil partner in the event of death, meaning that there is a total nil-rate band of £650,000 for couples. There is also a ‘main residence transferrable allowance’ of £175,000, in addition to the nil-rate Inheritance Tax threshold.
3. Give away assets
If you decide to give away assets and you live for at least another 7 years, then all these gifts are exempt from inheritance tax. If you die in less than 7 years, then there will be inheritance tax to pay on a sliding scale. Moreover, you can also give away gifts totalling £3,000 annually completely free of inheritance tax. You can also gift £5,000 for your child’s wedding. Please see our other guides on saving inheritance tax to find out more.
4. Put your assets in a trust
If you put your assets into a trust, they will be exempt from your total estate at the time of your death, and will consequently be exempt from inheritance tax. For example, if you wanted to put aside assets for your children to receive when they turn 18, you may choose to create a trust.
5. Put your assets in a trust and still retain the income
If you put assets into what’s known as an ‘interest in possession trust’ you can still receive income from said assets, and still avoid inheritance tax when you die.
6. Take out life insurance
There is also an option for you to cover any potential liability for IHT by taking out a life insurance policy for the possible inheritance tax bill. You can then place this policy into a trust, ensuring it is paid outside of your estate.
7. Make gifts out of your excess income
Another way to avoid paying inheritance tax is to make ‘gifts out of income’. For gifts to be eligible, they must be a part of your normal expenditure, come from income, and not decrease your standard of living.
8. Give away assets that are exempt from Capital Gains Tax
If you have any assets that have decreased in value since their purchase (for example, property), they could be inherited without being subject to Capital Gains Tax (CGT). Any recovery in the value of these assets would increase in the estate of the recipient and said gain would be exempt from possible IHT after 7 years.
9. Leave some to charity
Anything in your estate that is left to charity will be free from IHT. If you choose to leave at least 10% of your assets to charity, then the inheritance tax on the rest of your estate decreases from 40% to 36%.
10. Spend it
If you have worked hard to build up your estate, then you should enjoy it as much as you can!
If you would like to find out more information on how we at Thornton and Baines can help you make plans for your estate and your family’s future, take a look at our website: https://inheritance-tax.co.uk/