How to ease inheritance tax bill

nil-rate band is being introduced for main family homes that are passed to direct descendants (children, stepchildren and grandchildren). The allowance will be £100,000 in 2017/18, £125,000 in 2018/19, £150,000 in 2019/20 and £175,000 in 2020/21.

Add the two bands together to reach that £1 million per couple.

However, the new allowance tapers away for estates valued at more than £2 million, while those over £2.35 million will not qualify at all. Making gifts reduces your IHT bill. Parents and grandparents can make one-off gifts on the marriage of children or grandchildren, up to £5,000 and £2,500 respectively. In each tax year you can gift up to £250 to any number of people completely free of IHT. Donations to charities or political parties, either during your lifetime or via your will, are exempt.

Larger gifts can be made but for them to clear IHT the person making the gift must live for seven years.

And be careful – in order for it to qualify as a gift, you must not continue to have any benefit from the assets you have given away.

So, for example, if you give away your house – but continue to live in it, rent-free – it will remain part of your estate and so liable to IHT when you die.

Any assets you pass on to your spouse or registered civil partner are exempt. This does not apply if you are merely living together.

Certain investments, such as AIM stocks and Enterprise Investment Scheme shares, though considered more risky, can be advantageous, falling out of IHT if held for at least two years. Similar reliefs apply to agricultural property such as farms and woodlands.

One way to beat IHT is to put some of your cash, property or investments into a trust to eventually pass to your children, ensuring that your spouse can benefit from them for the rest of his or her life. But there are catches. The rules around trusts are complicated, so seek advice.

Pensions offer IHT opportunities, too. You can generally pass on pension pots free of IHT where you die before the age of 75. Over 75 and the recipient has to pay income tax on the benefits.

In all this there are rules of thumb you do need to bear in mind.

Keep your planning as simple as possible, do it as early as possible and don’t give away more than you can afford.

And, finally, the Chancellor announced in his 2014 Budget that inheritance tax will be waived for anyone in the emergency services who dies in the course of their duty.

Brave men and women and welldeserved, but not a mitigation path we would recommend! Trevor Law is managing director of Merito Financial Services, chartered financial planners, based in Solihull. Email:tilaw@meritofs.com