I have recently just written an article on Inheritance Tax explaining what the tax is and what it is payable on. Following on from this, this article will aim to give the various reliefs and exemptions that are out there to help reduce your Inheritance tax liability.
1) Spouse and Civil Partner Exemption – Inheritance Tax is not due on anything left to, or given to a spouse or civil partner who has their permanent home in the U.K, even if the amount is over the threshold.
2) Potentially Exempt transfers (7 year rule) – If you make a gift (or gift your estate) to someone 7 month before you die, this gift is generally exempt from Inheritance Tax.
This is by far the best exemption available. Of course no one out their knows when they are going to die. But be smart and start planning your affairs early. If you know for sure that you are going to leave assets to your children or grandchildren, make plans in advance so that you can give these assets to your children without incurring a hefty 40% Inheritance Tax bill.
But remember – A gift that retains some benefit for the giver is a ‘gift with reservation’ and the 7 year rule will not apply in this case. An example of this is when a parent gifts a child a house but the parent continues to live in it rent free until death. Such gifts are added to the estate at the death for inheritance tax purposes even if the donor died 7 years after the gift was given. In this case, it is not a potentially exempt transfer.
3) Charity Exemptions – Inheritance Tax is not due on any gifts made to a qualifying charity. Furthermore, leaving 10% of your net assets to a charity will reduce your Inheritance Tax bill from 40% to 36%.
4) Annual Exemption – You can give up to £3000 (cash or assets ) away each year, either as a single gift or as several gifts adding up to this amount.
5) Small Gift Exemption – You can give small gifts of up to £250 to any number of individuals.
6) Wedding and Civil Partnerships Gifts – Gifts to someone getting married or registering a civil partnership are exempt up to a certain amount depending on the relation of the giver to the couple.
7) Business Relief – Business Relief allows a business to be passed on as a going concern by reducing the Inheritance Tax on it by up to 100%.
I will soon be writing another article on how to put these exemptions and reliefs into practice. An integral part in trying to reduce your tax liability is to use different taxes in conjunction with each other. The article I will be writing will aim to show how this is done so keep checking the website in order to read the article once it is uploaded.