A tax on a deceased person’s estate is known as inheritance tax (IHT). This covers all assets, goods, and cash. The will’s executor needs to determine the value of all possessions after death and subtract any liabilities. The “estate,” which is what’s left over, is what is subject to inheritance tax.
IHT can cause families to lose thousands of pounds if it’s not properly handled. It can become even more difficult to handle if you don’t have the right financial assistance and counsel. It may seem difficult to understand at first, but with the help of the right tax advisor, you can discover several legal ways to pay less IHT. Consulting a tax specialist can enable you to make wise financial decisions and avoid paying more taxes than you’re required to.
Give Gifts Out Of Excess Income
Giving presents while alive is one strategy to lower your IHT liability. The gift must be made explicitly, though, or it’ll risk failing to qualify as a gift for taxation purposes. For example, a house won’t be exempted if you gave that property to your children but continue to live in it or benefit from it.
To ensure you’re receiving the advantages you anticipate, obtaining professional guidance from a tax accountant before giving away any significant gifts is crucial. Be mindful of the following few allowances when you intend to give gifts:
- You can give gifts of up to £3,000 apiece because of the yearly exemption. Also, if you didn’t utilize your exemption from the previous year, it will carry over into the current year, bringing your total exemption to £6,000.
- Along with the scenario mentioned above, you can also give wedding presents up to £1,000 for each individual. When you leave a present for your children, the amount rises to £5,000 and is about £2,500 for grandchildren and great-grandchildren. Also, married individuals can transfer unused tax benefits to their spouses, greatly boosting the tax benefits.
- You are also permitted to give unrestricted gifts worth up to £250 to the same recipient per tax year; if you haven’t taken out any other exemption on that individual.
Take Advantage Of Your Pension Freedom
It has been available to all UK citizens since 2015, yet many individuals aren’t using it fully. The use of a separate pension fund can make this strategy very effective. You try your best not to use up your entire retirement fund when you’re alive. Then, any remaining funds pass to your children, grandchildren, etc., tax-free after your passing. As a result, money can pass from one generation to the next.
Remember to mention pension or life insurance in your will and your tax accountant. These policies need to be drafted “in trust”. This typically means that any payments will pass directly to your heirs rather than being included in your estate and subject to IHT.
If you’re looking for reliable inheritance tax advisors in London, IBISS & CO is the right chartered accountant firm! Our inheritance tax advisors will help you determine your IHT and resolve other tax-related issues. Avail our services by getting in touch with us today!