Tips and tricks to remove sting frominheritance tax

The taxman is taking a bigger slice of people’s inheritances. Banchory-based chartered financial planner Paul Gibson gives his top tips for softening the blow

UK inheritance tax receipts reached £4.7billion for 2015/2016, representing a 20% increase on the previous year.

The amounts have been steadily increasing every year and if your estate value exceeds £325,000, or £650,000 if you are married or in a civil partnership, you could be affected.

What can be done to potentially mitigate your liability? Here are my 10 suggestions.

Annual exemptions – use your annual allowance of £3,000 per person. If you did not use last year’s allowance, you can go back a year and make a gift of £6,000.

Small gifts of £250 can be made to any number of people in a tax year.

Wedding gifts of up to £5,000 as parents, £2,500 as grandparents and £1,000 to more distant relatives can all be made and be exempt from inheritance tax.

Gifts from income allow you to pass on excess income, provided it is posttax and leaves you with enough to maintain your standard of living. They must be must be made out of normal expenditure and from income and not capital.

Potentially exempt transfers – these are larger gifts which are exempt from inheritance provided you survive for at least seven years. If death occurs within the seven-year period, inheritance tax will apply but a taper relief effectively reduces the tax payable.

Gifts made to a UK registered charity can have significant inheritance tax benefits. Not only is the gift itself free of inheritance tax but if 10% of your estate is paid to charity, the tax due on the balance may be paid at 36% instead of 40%.

Some assets qualify for business property relief (BPR). Provided they are held for at least two years, they may be excluded from your estate for inheritance tax purposes. These can include some shares listed on the Alternative Investment market which can now be purchased via an individual savings account.

Enterprise investment schemes enjoy similar benefits to BPR but have added income tax and capital gains tax advantages.

It is possible to make investments into trust. Life assurance companies offered packaged products which can be written into trust and these can offer significant inheritance tax benefits.

While not reducing the amount of inheritance tax payable, it is possible to take out life assurance to pay the bill. The policy should be written into trust to avoid it forming part of your estate.

This option allows you to retain full access and control over your estate.

It is essential that accurate records are maintained for any inheritance tax planning undertaken as they may be required for inspection at a later date.

Some of the schemes mentioned are higher risk and advice should always be taken before entering into such arrangements.

“Gifts from income allow you to pass on excess income, provided it is post-tax”