The most straightforward way of reducing the ultimate inheritance tax bill on your estate is to reduce the value of your estate.
Whilst this is not always a practical thing to do we do come across clients who want to give some money to their children (or grandchildren) to help them financially.
Sometimes this is to help them onto the property ladder.
Occasionally this is simply to help them out of a bit of financial difficulty; the good old bank of mum and dad!
The is an annual exemption which allows each person to give away £3,000 each year during their lifetime.
This can be as much as doubled up to £6,000 in this tax year if you did not use the facility in the last tax year.
So between a husband and wife as much as £12,000 could be given to the children inheritance tax free.
Our advice though is always to keep records of these gifts in case they are needed when your estate is finally settled.
If you give away money and that comes from your income then that is fine too.
These gifts of money can be on a regular basis as long as they do not affect the donor’s standard of living. Again we recommend that you keep records of any such gifts that you make.
If you have a child or grandchild who is getting married then you may make firer gifts in consideration of that marriage.
The amount of gift that is exempt depends upon the relationship and is £5,000 from a parent, £2,500 from a grandparent and £1,000 from any other relative.
Again such gifts are a legitimate deduction from the value of your estate for Inheritance Tax purposes.
You may give as much as you like to your spouse either whilst you are alive or on death and the whole value of such a payment is exempt from Inheritance Tax.
Of course this may have the affect of raising the value of the estate of the second spouse to die but as well as gifting him/her the value of your estate you also gift them your ‘nil rate band’ (£325,000) of value to offset against the value of their estate.
You may give as much as you like to a registered charity or political party during your lifetime or on death.
So all of these are worth considering and whilst they may, for some people, not be substantial transfers of value they do after all add up.
Remember though do keep good records of any money that you give away to reduce the value of your estate for Inheritance Tax reasons and only ever do this if you can truly afford to do so.
Photo credit: Flickr/Drunken Monkey
