There are several ways you may be able to reduce the amount of inheritance tax your family will have to pay on your estate.
One way is to make gifts from your estate during your lifetime.
Suzanne Porter and Jessica Rowbotham from Wake Smith’s Wills and Probate team look at the issues surrounding this option.
Director Suzanne said: “The first £3,000 gifted by each person in each tax year is tax free. In addition, if the previous year’s allowance was not fully used, the amount remaining can be carried forward for the maximum of 1 year (i.e. the total allowance at any time can be up to £6,000 per person).
“Gifts not exceeding a total of £250 each tax year can be made to any number of people who have not benefited from the gift above. These are then not taken into account when arriving at the £3,000 limit.
“Gifts made to a spouse or civil partner, charity, political party or for national purposes are always exempt from inheritance tax.”
Assistant solicitor Jessica Rowbotham adds
“Certain other gifts may be exempt from inheritance tax. An example is regular gifts made out of disposable income. To qualify as an exemption, the gifts must not affect the person giving the gift’s standard of living and must be made from surplus income which would otherwise be saved or spent as disposable income.
“Some gifts on marriage may also be exempt but this depends on the relationship between the giver and receiver, and gifts made for maintenance or training of the giver’s child may also be exempt.”
Any gift given which is not exempt and is above the limits mentioned above is termed a “potentially exempt transfer” and will form part of your estate if you die within 7 years of making the gift, meaning it will use part or all of your nil rate band allowance.
Suzanne added: “If you survive 7 years, the gift will fall outside of your estate and therefore it will not use any of your nil rate band and no inheritance tax will be payable on the gift.
“Your nil rate band is the sum of money which is tax free on your death. This is currently £325,000. A further nil rate band is available if you are leaving residential property absolutely to direct descendants.
“Investing in assets which are eligible for 100% or 50% Business Property Relief and similarly Agricultural Relief are another way of reducing your potential IHT bill.
“There are a number of different factors and criteria which determine the eligibility of these reliefs (such as the number of years of ownership) and it is therefore important that you seek specialist legal advice on this topic.
Any gifts made under your Will or during your lifetime to Charities are also exempt from IHT.
For further advice on gifting or Wills in general contact Suzanne Porter at [email protected] or on 0114 266 6660.
