To avoid losing much needed money to the government through punitive inheritance tax (IHT), those looking to provide for their loved ones should draft their Wills tactically, experts have advised.
The much-hated tax is currently charged at 40% on the value of an estate over the nil-rate band threshold, £325,000 for an individual and £650,000 for married couples.
But, once the family home, holiday properties, buy-to-lets, savings and investments are factored in, many estates are now over this limit, leaving hard earned goods at risk of the state’s greedy reach.
While IHT laws are wide and varied, there are a number of exemptions individuals can utilise to guarantee that money earned in life can be left with family and friends.
Firtsly, IHT is not payable when an estate passes between a husband and wife, or from one civil partner to another.
For example, married couples and civil partners can double their IHT-free threshold to £650,000 when the second partner dies. In order to do this, any of the first spouse’s unused allowance must be transferred on the death of the second spouse.
Individuals can also give away assets during their lifetime. Up to £3,000 a year is immediately exempt from IHT, or £6,000 if no gift of this kind has been made in the previous tax year.
Parents can give £5,000 to each of their children, as a wedding or civil partnership gift, while grandparents can give £2,500 and anyone else £1,000. Donations to charities and political parties are also entirely exempt.
Olwen Williams, Partner and Head of Wills and Probate at Stephensons Solicitors LLP, said: “There are many methods for drastically reducing IHT bills but seeking professional advice from Wills and Probate solicitors, well versed in the complexities of IHT law, is a surefire way to achieving the best results.
“While planning for your own death can be emotional and sometimes difficult to face, making the right decisions early is paramount to avoid a painful and financially difficult future for your loved ones.”