Inheritance tax explained by Interactive Investor expert
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With the right planning, savers and investors can take some key steps to save thousands of pounds in 2022.
The standard inheritance tax rate is 40 percent and is charged on anything above the £325,000 threshold.
Planning ahead is often the best way to make savings especially when it comes to complicated matters like inheritance tax.
Experts recommend following 10 rules or legal loopholes that will help people pay less taxes to HMRC.
These include spending it while still alive and considering putting the family house into trust.
Britons can also make use of gifting allowances which could save them thousands.
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Britons can make sure they don’t go over the threshold by giving throughout their lifetime.
A parent can give at least £3,000 to family members and friends tax free in one year.
It can be up to £11,000 if they carry an allowance over from a previous year or the giftee is getting married.
Some Britons may not be aware that there are rules and loopholes that could help them pass on more of their hard earned cash tax free.
10 ways people could pay inheritance tax:
- Talk to parents or grandparents about putting the property into trust
- Make sure they know about Business Owner Exemptions
- Donate a part of it (above the threshold) to charity
- Gift up to £3,000 to family members and friends tax free
- Give away assets seven years before they die? Encourage them to spend it well before they die
- Make the most of wedding gift allowances (up to £5k)
- Buy a funeral plan
- Spend it
- Be mindful of inheritance tax thresholds
- Speak to an independent financial adviser
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Another way to pay less tax to HMRC is to make use of pensions and the full ISA allowance of £20,000 for 2022 to 2023.
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.
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