Households face £200,000 inheritance tax bill – but there’s an easy way Britons can save

Inheritance tax explained by Interactive Investor expert

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Inheritance tax is a levy on someone’s estate on someone’s estate, which includes their money, possessions and property, after they have passed away. The value of someone’s estate needs to be below the threshold of £325,000 for someone to not need to pay this tax. However, those who have to can reduce what they need to pay by gifting, a very popular tax-saving measure.

Gifts to married partners are exempt from IHT, which means someone who has died can pass on their estate to their spouse.

If a wife dies and leaves all the estate to her husband, he can add her allowance of £325,000 to his own tax-free allowance.

However, if the estate is valued at £300,000 and is left all to another member of the family, her husband would only be able to claim the remaining part of £25,000.

When it comes to gifting to children, as long as the person who dies lives for more than seven years after they make this gift, their children or family will not have to pay IHT on the gift after their death.

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However, if the parent dies before then, the children will likely have to pay inheritance tax on the gift, however the rate is determined on how long after making the gift they died.

Furthermore, gifting to charities is also a recognised IHT-saving measure which people decide to use.

This practice can also reduce the rate at which inheritance is due from the current rate of 40 percent down to 36 percent.

Alex Davies, the CEO and founder of Wealth Club, outlined the detrimental effect IHT has on someone’s inheritance and family.

Mr Davies explained: “Inheritance tax really is the gift that keeps on giving – to the Treasury at least.

“With the pace of property price growth still at nearly 10 percent, it’s no wonder so many more households are being pushed over the IHT threshold.

“It’s now believed that the average family impacted by inheritance tax will face an average tax bill of £200,000.

“There are perfectly legal and legitimate ways to reduce your inheritance liability with a little careful and early tax planning.

“Writing a will so that you are forced to consider and address the issues your estate might face, and keeping it regularly updated to reflect any changes in heart or circumstances should be a priority for everyone, married or not.”

On the issue of gifting, the financial expert shared how this tax-saving measure can reduce someone’s bill drastically.

He added: “Give money away early. Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts.

“Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free.

“Of course, once you give away the money you have lost control. If you need it back for an emergency, that’s not an option.”

Recent Government statistics revealed that IHT receipts rose to £0.5billion in April 2022 according to HMRC.

This is £10million higher than in the same period the year before which means many people are being pulled into the inheritance tax threshold and may choose to gift in the near future.

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