personal finance

Finance expert busts 'common misconception' about inheritance tax – can you cut your bill?

There is a perception that Inheritance Tax only affects the wealthiest in society, however, this is not the case anymore.

One in every 25 estates pay inheritance tax, although the proportion of families affected is higher due to higher house prices and the freeze on inheritance tax thresholds.

For those that are picking up the ‘death tax-tab’, figures suggest the average bill could increase to £239,000 this 2023/24 tax year, with over 30,000 families having to hand over part of their inheritance to the taxman.

This is a steep 11.5 percent increase from the £214,000 average paid just three years ago and a 14.4 percent rise in the number of estates paying the tax.

Despite the rise in numbers, Britons are reminded of the ways they can legally cut their bill down.

Jonathan Halberda, Specialist Financial Adviser at Wesleyan Financial Services explained “that there’s also a common misconception that people will have to pay Inheritance Tax on your family home if it’s worth more than £325,000”.

However, this is not the case as people have the right to transfer that property to their partner or their children with no Inheritance Tax to pay.

He continued: “It’s undoubtedly complex, but the reality is that this is largely an optional tax. By seeking professional support and acting early, you can put plans in place to minimise your risk.

“That might typically include putting savings into a trust, making gifts and taking out relevant life insurance policies that can counteract your liability. It’s never too early to start considering how you want your estate to be distributed.”

The standard Inheritance Tax rate is 40 percent. It’s only charged on the part of your estate that’s above the threshold – £325,000.

Mr Halberda gave a few tips to help Britons slash their bill.

Britons need to use their IHT spouse exemption.

People can leave their entire estate to their spouse or civil partner and, even if its value exceeds the nil-rate band of £325,000, there’ll be no Inheritance Tax to pay.

Making a will

Whether leaving assets to a spouse or civil partner or distributing assets to take advantage of tax-free allowances, a valid will can help people reduce or avoid Inheritance Tax altogether.

Using trusts

Assets in trusts are no longer in one’s name and therefore not considered when valuing their estate for Inheritance Tax.

Gift giving 

Gifting money or assets to loved ones before someone dies can avoid Inheritance Tax.

But there are limits on how much people can give away and who to, so get advice first, he warned.
Gifts to charity

Leaving gifts to registered UK charities in one’s will, whether it’s money, property or other assets, is exempt from Inheritance Tax.


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