No one wants loved ones to get lumped with a hefty inheritance tax bill unnecessarily.
Inheritance tax was once targeted at the wealthy with just 5 percent of people leaving estates sufficiently large to make their beneficiaries liable for inheritance tax. However, with more and more retirees investing in property to provide a reliable income and property prices continuing to rise, the figure is expected to rise to 10 percent by 2019.
In 2013 – 14, the Government took a record £4.6bn in tax from estates. This is almost double the £2.4bn taken in 2009-10. Therefore, it’s no surprise that many people are looking for legal ways to reduce or avoid a large inheritance bill.
We have compiled three ways to do so;
- Property Handover: Give your home to your kids and pay them rent
The first option to legally avoid paying inheritance tax is to sell your home for the correct market value to your children and pay the correct market rent. By doing so, you are taking the family home out of the taxman’s clutches. However, it is worth noting, if you do choose this option, the rental income they receive will count towards their income tax bill, potentially pushing them into a higher tax bracket.
- Life Insurance: Put the policy in trust
The second option to reduce or avoid your inheritance tax bill is to set up a life insurance policy in a trust. Putting your life insurance policy into a trust allows you to appoint one or more beneficiaries of the trust, who will be paid the full sum due when you die. Beware though, life insurance premiums can be high especially as you get older. Additionally, you also need to be in good health, otherwise, HMRC will assume you are trying to dodge inheritance tax.
To get help with this option, speak to a registered financial advisor.
- Supporting a cause: Give to charities and political parties
The third option is to gift money or bequeath money to charities and political parties which is automatically excluded from your estate when inheritance tax bill is calculated.
These are just three of the ways to reduce your inheritance tax bill and there are plenty of other ways and tools. Edifice Invest recommends speaking to a qualified financial advisor so you can find out the most effective options for your individual circumstances.
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