Reducing your Inheritance Tax bill
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With levels of inflation and house prices currently being so high, the value of your estate may be increasing exponentially when compared with the value of the long-frozen Nil Rate Band. This could mean more than ever that a portion of your estate may be stolen away through Inheritance Tax at 40% when you pass away. However, a myriad of reliefs are available to be utilised which can save the wily taxpayer potentially inordinate sums of money.
Some of the reliefs which Whitings can advise on include:
Utilising the Nil Rate Band
The Nil Rate Band refreshes every seven years. This means that tax-free gifts of up to £325,000 could be made during your lifetime, providing you survive seven years after the date of the gift.
Inheritance Tax Annual Exemption
Each individual has an annual exemption of £3,000 per tax year – you can make gifts up to this amount without incurring an Inheritance Tax liability. If you did not use this allowance in the previous tax year, it is possible to roll over any unused element into the current year.
Small Gifts Exemption
Any gifts up to the value of £250 can be made to an individual each tax year. This exemption is £250 per individual, so you could make gifts of £250 each to as many people as you wish.
Gifts out of Surplus Income
An exemption is also available for gifts made from your income which is excess to your living requirements. These gifts have no maximum value, so this can be a very valuable relief. There are however some criteria which need to be met in order to claim the exemption:
- You must be able to prove that the gifts are made out of income which you do not need to use in order to maintain your current standard of living.
- The gift must be made out of your income reserves, and cannot be capital in nature.
- Gifts must be made in a ‘regular pattern’ – i.e. they cannot be one-off gifts.
Gifts to Charity
Any gift to charity is exempt from Inheritance Tax. There is also favourable treatment of an Estate where a sufficient legacy is left to charity, by way of a reduced rate of Inheritance Tax.
Wedding Gifts
It is possible to make a wedding gift of £1,000 to anyone, free from Inheritance Tax. The exempt amount rises to £2,500 for the wedding of a grandchild, or £5,000 for the wedding of your child.
Utilise your Annual Pension Allowance
The value of your pension is not usually subject to Inheritance Tax. It may be beneficial therefore to utilise your annual pension allowance to contribute as much excess cash as possible to your pension. It is important to note that there is a cap on the annual allowance each year, which is influenced by a number of factors. You should therefore seek advice before making pension contributions.
Specific Investments
There are some specific types of shareholding which can qualify for exemption from Inheritance Tax, providing certain conditions are met. Whitings can advise on these conditions and the types of shares which can potentially qualify for this exemption.
Whitings can advise on how best to apply all of the above, and more, to your individual circumstances. Contact us, or speak to your usual Whitings contact to find out how we can help.