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  • Rihab Iqram

Five ways to reduce inheritance tax

Updated: Oct 12, 2020

What is Inheritance Tax?

Inheritance Tax is a tax on the estate (the property, money and possessions) of someone who's died.

Conditions to pay Inheritance Tax:

- The value of the estate must be below £325,000 threshold. If the value of the estate is below the Inheritance Tax threshold then you do not have to pay Inheritance Tax.

- You leave everything above the threshold to your spouse, civil partner, a charity or a community amateur sports club.

Find out the estimated value of your estate and see how much inheritance tax may be due when you die using the Inheritance Tax Calculator.

Around £550 million is wasted each year by people not taking simple steps to reduce their IHT bills.

Five ways to reduce Inheritance Tax

  1. Understand: The amount you will leave when you die, include property, pensions and life insurance, it's probably more than you think.

  2. Wills: Making a will is the building block upon which all other ways to reduce Inheritance Tax are built.

  3. Claim: The new residence nil-rate band and the transferable spouse's nil-rate band are only available if you claim them.

  4. Trusts: Ensure life cover is written into a trust so it avoids the Inheritance Tax net. Additionally, if you put you assets into trust which you, your spouse or your children under 18 can benefit from, then they will no longer be a part of your estate for Inheritance Tax purposes.

  5. Gifts: You can give certain amounts away each year to reduce your Inheritance Tax bill. If you make large lifetime gifts, the beneficiaries could take our life insurance against the potential inheritance tax bill. However, most gifts into trust are a subject to inheritance tax, so this is best if you speak to a financial advisor.

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