Make huge IHT savings from inheritance tax tool ‘nobody knows exists’

Britons are on course to pay a record £7billion in inheritance tax this year and HMRC’s money grab is only going to grow over time.

The IHT threshold has been frozen at £325,000 since 2009, and now Chancellor Jeremy Hunt has extended the freeze until 2028.

If the Labour Party wins the next election inheritance tax raids are more likely to intensify than ease, so families should do all they can to reduce their exposure.

One overlooked option is trust planning, something many dismiss because I think it is only for the super rich.

Others ignore a little-known option that involves making gifts from regular income to a loved one, which immediately become free of IHT.

Some struggle to understand how it could works while others do not even know this valuable tax break exists, said Rachael Griffin, tax and financial planning expert at wealth manager Quilter. 

Yet done properly, it could allow families to move large sums out of the range of HMRC, especially if they have exhausted better-known gifting options.

Every adult can gift a maximum £3,000 a year IHT-free, so couples could gift £6,000 in total (and mop up last year’s allowances too, if unused). 

Brits can make smaller IHT-free gifts of up to £250 per person, provided the recipient has not benefited from the £3,000 allowance.

Parents can also gift £5,000 to a child on marriage, or £2,500 to a grandchild or great-grandchild who is getting married, and £1,000 to a relative or friend.

Any further gifts are known as “potentially exempt transfers” and only fully escape IHT if you live for another seven years after making them.

These gift limits are well known, but limited.