It isone of the most hated taxes — and more and more people are being dragged into it as house prices rise.
But couples can give away £24,000 a year without inheritance tax dogging their family.
If the total value of your property, savings and other assets is below £325,000 — double that if you’re a married couple — there’s no need to worry about inheritance tax.On top of this, you may be able to use an extra £100,000 allowance for your main property.
But HM Revenue & Customs will levy 40 per cent on anything above this from your estate when you die.
Act now: Couples can give away £24,000 a year without inheritance tax dogging their family
Giving away your wealth while alive doesn’t necessarily mean you’ll escape, as the taxman can judge you were deliberately trying to avoid the tax and chase your relatives for money.
Many people have heard of the seven-year rule, which means gifts made more than this time before your death are safe from the taxman’s grasp.
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But there is a host of lesser-known gift allowances you can use. Below, are the six key rules that could save your relatives a fortune.
You’ll find more on these allowances — and everything else you need to know to beat death duties — in a new free Daily Mail guide to inheritance tax by Money Mail Editor Dan Hyde, out today.
Give away money each year
Every year you can give away £3,000 free of inheritance tax. This can be to anyone you like or split between any number of people.
If you don’t use the allowance one year, you can carry it over to give £6,000 the next. But you may not roll it up over multiple years in order to give away a bigger sum.
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Wedding presents
On top of the annual allowance, parents can each give a wedding gift of up to £5,000 to their children for a marriage any time before the big day. You cannot use this allowance after the ceremony.
If your grandchildren marry, you can give £2,500 to each, and for friends or other relatives it’s £1,000.
You could pay for the wine or catering. But beware if paying for the honeymoon — you must transfer the money before the wedding to stay within the rules. Keep a record of all gifts with your will.
Let’s say two of your grandchildren get married in a year — that’s another £5,000 of your estate that the taxman can’t touch, taking your total to £8,000.
Unlimited small gifts
You can make an unlimited number of gifts of up to £250 each in any tax year as long as they are to different people. But don’t go over this sum, or the gift could be classed as part of the £3,000 annual allowance.
This rule is great for grandchildren’s birthdays and at Christmas, but ensure you haven’t used any other exemption for the recipient already, or the allowance might not apply.
Making £250 Christmas gifts to four grandchildren will take another £1,000 from your taxable estate. That makes the total £9,000, so far.
Charitable donations
Helping good causes with monthly donations can cut your inheritance tax bill.
Charitable gifts are free from the tax, and if you donate at least one-tenth of your net wealth, the Government may cut your inheritance tax rate from 40 per cent to 36 per cent.
If you’re already giving £30 a month to three different charities, for example, you’re safely reducing your estate by £1,080 a year. That takes you to just over £10,000.
Contributing to living costs
If you support an elderly person, an ex-spouse, a child under the age of 18 or in full-time education, then you don’t have to worry about inheritance tax on the money you give them.
Gifts to help with someone else’s living costs fall under a special exemption.
Payments from surplus income
If you have a good pension or other investment income, you can make regular gifts from your surplus income that won’t be liable for inheritance tax.
It’s vital you’re able to maintain your usual standard of living and you can’t just go and cash in an Isa or sell your shares — the gift must come from your regular income.
But this rule is tricky to apply and it’s best to seek independent advice before making use of it.
Let’s say you can show that £2,000 a year is surplus to your basic needs — you’ll have reached £12,000 in total. As these allowances are for each individual you can double this to £24,000 for a couple.
- To find out if your family will face inheritance tax, and how you can safely reduce the bill, order your free copy of the Daily Mail’s guide to inheritance tax by Money Mail Editor Dan Hyde. Call 0800 014 6601 or visit mailfinance.co.uk/ihtguide.
How to beat inheritance tax: Find out more on the This is Money podcast
Inheritance tax is one of the most hated around.
Despite the fact that most people will never leave enough wealth to have it charged on their estates, we really don't like the idea of 40% above a certain amount going to the taxman.
But IHT is also a tax that can be avoided.
On the This is Money podcast, Simon Lambert, Sarah Davidson and Georgie Frost look athow.
Press play to listen to the episode below, or listen (and please subscribe you like the podcast) atiTunes, Acast and Audioboomor visit our This is Money Podcast page.
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