How To Avoid IHT
For the avoidance of doubt, there are only two ways to avoid IHT - Die Poor or Plan Ahead!
With this in mind, planning to avoid IHT is the domain of a professional adviser and many of the best savings in IHT can be made by simply restructuring your existing assets and investments. However, there are steps that an individual can take that will certainly help the situation at no cost.
Planning your Estate to minimise IHT
The first step your journey toward the formulation of a plan to avoid IHT is to have an understanding of the size of your own Estate's liability to IHT after your death. You may like to try our simple IHT Calculator to give you a rough idea of the potential IHT bill.
Once you have established the liability to IHT, you should familiarise yourself with the use and significance of the main exemptions to IHT. These exemptions are the legitimate gifts one may make which are recognised by HMRC as entirely free of IHT. For more information please visit our IHT Exemptions page.
When you are familiar with the accepted IHT exemptions it is perfectly sensible and highly recommendable to utilise these annual exemptions, small gift exemptions, gifts made out of normal expenditure, gifts in contemplation of marriage and even charitable donations each year during your lifetime if financially practicable.
Lifetime Gifts & Gifting Strategies
After exhausting your primary IHT Exemptions, should you still have assets that you can afford to dispose of during your lifetime, you may of course choose to make gifts of money or property to an individual or perhaps to a "Discretionary" or "Fixed Interest" Trust. Refer to the section on Trusts for more information. It is very imortant to note, and this cannot be stressed highly enough, GREAT CAUTION should be exercised when gifting as certain gifts may attract an IMMEDIATE liability to IHT. You might like to visit our Gifts and Lifetime Transfers page for more information.
IHT Planning for married couples
Prior to the Budget of 2007 there was great benefit to be gained from many initiatives that had been specifically designed with a view to utilising both nil rate bands of a husband and wife/registerd civil partners. However, since that Budget speech such plans were rendered somewhat redundant with the introduction of the "Transferrable Nil Rate Band". With this in mind, I would go as far as to suggest that potentially any use of a spouses nil rate band on death for the benefit of anybody but the surviving spouse/civil partner could have a very detrimental effect to inheritance tax ultimately.
IHT Plannning using the Main Residence
For many people, the largest asset they hold will be their home or Principle Private Residence (PPR)as it is known. Over the years there have been a number of "exotic" looking schemes established that have been designed to shelter the value of your home from IHT. You should be aware that such schemes are being closely scrutinised by HMRC but remain unchallenged until death. Given the fact that there is no capital gains tax on the realised gain on the sale of your PPR, and such relief disappears should you give it away, I would urge you not to consider any IHT initiatives that concern your PPR.
Do ensure that you have a valid Will in place and that it accurately reflects your wishes. Whilst these days a Will can't really be specifically drafted to save IHT, but just in having a Will in place your Estate will almost certainly result in a lower IHT liability than had you died without a Will and your Estate distributed under the laws of Intestacy.
- Take Advice from a Professional Adviser
- Write a Will & Ensure it's up to date
- Ensure your investments are structured to minimise IHT
- Maximise your use of IHT Exemptions
- Be Sensible
- Review your IHT plans regularly
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