Published On: Sun, May 22nd, 2022

HMRC Inheritance Tax: 10 ways to slash your HMRC inheritance tax bill | Personal Finance | Finance


The threshold for paying inheritance tax is £325,000 – which hasn’t increased since 2009. These days it’s not unusual to have a property worth that amount, meaning middle income earners could be liable to pay 40 percent tax when they pass on their assets to loved ones.

While average house prices have risen 53 percent in the last ten years, the threshold at which people need to start paying 40 percent inheritance tax to HM Revenue and Customs (HMRC) has stayed the same.

Over the past 13 years, IHT has become a significant income stream for HMRC.

A residence nil-rate band was introduced in 2017 which allows a further £175,000, providing residential property is left to direct descendants.

However, the number of properties selling for more than £500,000 is increasing every year

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Another way to pay less tax to HMRC is to make use of pensions and ISA allowances.

Emma Keywood, senior product manager at AJ Bell explained that pensions allow taxpayers to claim an additional 20 to 25 percent tax relief through their tax return. 

She said: “That means for a basic-rate taxpayer every £1 in your pension only costs you 80p and for a higher-rate taxpayer every £1 in your pension only costs you 60p.”

However, because it is a complicated subject, it may be useful to speak to an independent financial adviser.

The will writer suggested some other ways people can save money:

“Gifting away assets can help you stay under these limits. In general, a gift to another individual would be exempt after seven years, plus there are annual allowances.

“If you have rental properties, you can put them in Trust to get them out of your estate after seven years. You’ll need expert advice on Trusts, inheritance tax and the taxation of rental income before you proceed.

“Financial advisors can provide inheritance tax-friendly investments that are exempt from inheritance tax after a certain number of years.

“Give to charity. Gifts to qualifying charities during your lifetime are exempt. When you die, if you leave more than 10 percent of your estate to charity in your Will, the applicable rate of inheritance tax is reduced from 40 percent to 36 percent.”



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