Our Top 5 Tips for Saving Inheritance Tax

Our private client department gives advice on a range of private client issues including will drafting, powers of attorney, probate, trusts and capital taxes planning. Here we give our top five tips on entirely legal ways of reducing exposure to inheritance tax.

1/. Lifetime Gifts

Consider the affordability of making significant lifetime gifts to family as early as possible. Gifts made more than 7 years before you die escape the inheritance tax net, unlike gifts made in the last 7 years of life.

2/. Automatic Exemptions

Use automatic exemptions from inheritance tax to gift modest sums on an annual basis. For example use of the annual £3,000 gift allowance could cut an inheritance tax bill by £1,200 - equivalent of saving your family £100 per month.

3/. Insurance

A whole of life policy can be taken out to produce a tax free pot of money on death out of which the inheritance tax can be settled. Premiums would need to be affordable, but budgeting is straightforward, because they are usually fixed at the outset and guaranteed not to increase. Although it is not strictly a way of saving on tax it can boost what your heirs receive, which is what most clients want.

4/. Review your Will

Many wills of married couples and civil partners can be simplified to take advantage of the ability to transfer the inheritance tax free allowance between partners. Old wills often have clauses in them that require a person to outlive their partner by a period of time, typically a month, before they inherit. These clauses are often unnecessary and can be inheritance tax inefficient.

5/. Keep paperwork when you inherit

Where you inherit from your spouse it is very important to keep the paperwork, such as a copy of the Will and Probate and any accounts prepared to show the distribution of the estate. Also keep a copy of your marriage certificate with these papers. These may be required by your executors to make a claim to enhance the inheritance tax free allowance available to your estate after your death.

Even where you inherit from someone else and some inheritance tax has already been borne by the gift, your estate may be able to claim some relief from inheritance tax on your death, but your executors will need to be able to find the paperwork.

Fitzhugh Gates Solicitors Comment

At Fitzhugh Gates we are very experienced in advising on lifetime inheritance tax planning and saving tax through an efficiently drafted Will. It is never too early to contact us to seek best advice.