Mortgages & Home Finance Inheritance Tax Advice

Date Published:

28/05/2008

Credit: Tetra Images

If you believe you will be eligible to pay IHT then don't panic! There are several steps you can take to ensure as little as possible is left to the taxman. The Which? Essential Guide to Giving and Inheriting recommends the following:

Tax Free Gifts

Gifts of up to £3,000 can be made each year on a tax free basis to reduce the size or your estate. Gifts of over £3,000 are known as PETs, Potentially Exempt Transfers, and can become IHT tax-free if the giver is still alive 7 years after the gift is made.

Tax-Free Thresholds

As IHT is only levied on the death of the second partner in a relationship, the tax free allowance available after the death of the first partner can sometimes be wasted. By leaving a significant amount in the will of the first partner to pass on to children/grandchildren you can make use of both partners' tax free thresholds.

Trust Funds

According to Which? Magazine, "Leaving your house to a trust is worth considering for everyone in the inheritance tax bracket. You can also put investments - say, to pay for a child's education - into a trust, but the running costs of this type of trust mean that it is only worthwhile if you put in at least £100,000. The amount of tax you save is £114,000 if the whole of one tax-free threshold is used."

Insurance

Taking out an insurance policy won't help to reduce the amount you may have to pay, but it could be an effective method of helping pay the bill.

If you decide to take steps to reduce any potential IHT payments, it's important to get the advice of a qualified professional. Solicitors and tax advisors will be able to help or you can contact a specialist via the Society of Trust and Estate Practitioners.