Six strategies to minimise an inheritance tax liability

We work hard throughout our lives to ensure our loved ones are provided for in the event of our passing. This can include our spouses, children, stepchildren, and grandchildren.

Inheritance tax can be charged on the value of someone’s estate when they die, with their estate including property, money, and possessions. The current tax rate is 40%, which is applicable on the part of an estate that exceeds the threshold of £325,000. This can increase to £500,000 if you leave your home to your children or grandchildren.

Fortunately, some strategies can be used to minimise any tax liability. Let’s look at six of these.

Strategies

1. Plan ahead where possible. By knowing how much your estate is worth, you can look at minimising how much inheritance tax will be owed.
2. Trust planning can help reduce liabilities that would usually be incurred as part of your estate.
3. Ensure you keep detailed financial records, especially when it comes to gifts. You can also be savvy with the use of exemptions, such as transferring assets to your spouse.
4. Make sure you are aware of the rules surrounding gifting and use these wisely to your advantage. Gifting £3,000 per annum is available on a tax-free basis. Other gift allowances, such as the small gift allowance, are available.
5. Consider making smart investments. Schemes such as the Enterprise Investment Scheme can help reduce your inheritance tax liability.
6. Spending money is sometimes helpful. By making payments towards quality time with your family or investing in your children’s education, you are ensuring your family benefits while offsetting money that would be subject to inheritance tax should it remain untouched.

Legal expertise

A leading London law firm, such as Forsters, can provide expert legal advice on all elements of estate planning, including wills, lasting power of attorney, trusts, and inheritance liabilities.

Forward planning in the event of death, critical illness, or becoming mentally incapacitated is crucial to protect your assets and continue providing for those you love.