Know How to Avoid Inheritance Tax in UK

An inheritance tax is a type of tax which is paid by an individual who inherits money or property of a deceased person. Most people want to avoid paying this tax and they are always on the lookout for ways. In this article, we will list you some ways with the help of which you can avoid paying inheritance tax in UK. 

 Giving gifts when you are alive

One way in which you can reduce the amount of inheritance tax is by giving gifts when you are still alive. It is important to  make these gifts 7 years before you die or else it will fail for Inheritance tax. Also, if you transfer an asset to your children and you continue to benefit from it, the gift will not qualify for exemption. If you want to give big gifts, ask for advice from an experienced professional. There are allowances that you need to be aware of:

Annual exemption
An individual can give away £3000 worth gifts every year without this getting added to estate value. If you have not used last year’s exemption, then you can carry it forward to this year which will make the total annual exemption to £6000.

Wedding gifts
One can also give wedding gifts worth £1000 per person. This is £2500 for grandchildren and £5000 for your own children.

Small gifts exemption
One can give gifts of £250 to any number of people yearly. This is only applicable if you have not used other exemptions on the same individual.

Leave your money to charity

If you leave any asset to a registered charity, then it will be exempt from inheritance tax. If the value of your assets on death are £350,000 and you include a charitable gift amount of £30,000, then there will be no inheritance tax to pay. This will happen because after deducting the charitable gift amount, the Estate value will be £320,000 which is below the £325,000 inheritance tax allowance. Hence, be smart about how much you give to charity so that you can maximise the efficiency of the estate.
Pensions and life insurance policies

To minimise the inheritance tax, you can opt for pensions and life insurance policies. You need to write them down in the trust. This means that any kind of payouts will not be a part of the estate. Instead it will go straight to the beneficiaries without being counted for inheritance tax. 

 
Leaving everything to the partner

If you are already married or your partner is domiciled in the United Kingdom, then you do not have pay the inheritance tax on the death of the first spouse provided everything over £325,000 is left to the surviving spouse. Married individuals and civil partners can pass their unused tax allowance to their partner free of Inheritance tax

For example, Suzy decides to leave her whole estate to her husband when she wrote the will. The estate is estimated at £500,000. This means that there is no inheritance tax on the estate. Suzy did not use the £325,000 inheritance tax allowance and she passed it to her husband. As a result of this, her husband’s inheritance tax allowance level rises to £650,000 or two nil rate bands depending on the value of that allowance on his eventual death. 

Leaving the house to your children
The government have come up with an additional tax allowance on top of the existing nil rate band. This is helpful for the home owners as they get an extra £175,000 tax allowances if they ever leave their home to their children, grand-children or even their step-children. This is also applicable if they leave the home to their civil partners or spouses too. It is very vital that you understand the extra tax allowance before you write down a will. This will have a long lasting impact on the person you decide to leave the estate to. 

Hence, these are some simple methods that you can utilize to avoid paying the inheritance tax in the UK. Keeping these methods in mind will ensure that you can save money that you otherwise would have to spend in paying Inheritance tax. This will increase your savings and you will be able to leave more money for your partner or children.


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