Gifting tips for parents to reduce your inheritance tax bill

Year Published: 2019

If you are concerned about the inheritance tax your family will have to pay and how much may go to the taxman, this article summarises various ways to reduce your inheritance tax bill when you are living.

If you are a single person and your estate is worth over £325,000 or if you are married and your combined estate is worth £650,000 or more, you should consider your inheritance tax position.

Inheritance tax is charged at 40% so it is worth thinking about a strategy to ensure you are fully utilising any allowances available. Here are some ideas to consider:

Will the Residence Nil Rate Band (RNRB) apply?

Broadly this applies where property is inherited by direct descendants. The RNRB offers an additional allowance of £175,000 each by 2020. However, beware that there are traps for the unwary.

Do you have excess income?

Holly Jones, Private Client Solicitor at SAS Daniels LLP

Holly Jones, Private Client Solicitor

If so and you make regular gifts, the ‘normal expenditure out of income’ exemption may apply. This exemption is very valuable because there is no limit provided it meets the conditions.

Would you consider setting up a trust?

Funds can be carefully managed by trustees for the benefit of your children or grandchildren (for example). Trustees are given discretion over when appointments of capital or income are made, how often and how much. You can appoint yourself as a trustee to control the use of the trust funds and leave a letter of wishes for new trustees after their death.

Careful consideration needs to be given to the taxation of creating the trust and the on-going administration but managed correctly they can be a very versatile tool. The funds can be specifically for education or any other preferred purpose.

Have you considered an investment that aims to qualify for business property relief?

Business Property Relief (BPR) is very valuable because if an asset meets the criteria, no inheritance tax is payable on it.

Are you making the most of your annual allowances?

Don’t forget you can gift £3,000 per tax year with no inheritance tax consequences. Any unused allowance from the previous year can be carried forward too.

Small gifts of up to £250 can be made to as many individuals as you wish and certain gifts on the occasion of marriage have no inheritance tax consequences.

Why not make a gift to Charity?

Gifts to charity are exempt for inheritance tax purposes. Additionally, if the gift represents 10% or more of your estate (subject to a complex calculation of components), this could reduce the inheritance tax rate from 40% to 36%.

Inheritance tax planning can be complex and it is imperative to seek specialist advice to ensure the best outcome.

For more information on Wealth Planning matters, please contact Holly Jones in SAS Daniels’ Wills & Wealth Planning team on 01244 305 942.

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