Inheritance tax: How to increase tax-free threshold
“Remember that these rules do not recognise unmarried partners. If you’re not married or in a civil partnership, then your partner won’t receive anything from your estate (that isn’t jointly owned by them) unless this is specified in your will.
“You should review your will if your circumstances have changed: for example, marriage can invalidate an earlier will.
“You can help your family by sharing your plans with them – you may even find that they suggest something different.”
Ms Boyle also suggests people simultaneously set up a Lasting Power of Attorney to ensure a trusted person can deal with their affairs if they lose capacity.
Make use of exemptions
There are several allowances for gifts which are automatically exempt from IHT, according to Ms Boyle.
These include:
- £3,000 can be gifted every year. This allowance can be carried forward one tax year if unused.
- Unlimited small gifts of £250 are also permitted
- Gifts between spouses or for the maintenance of children, ex-spouses or dependent relatives are also exempt.
- Gifts to people getting married are exempt: up to £5,000 for the person’s child, £2,500 for their grandchild or great-grandchild, and £1,000 for anyone else.
On gifts, Mr Malkiel elaborated that people can also: “Make outright gifts of any value tax-free, provided it’s at least seven years before your death.
“The rate starts to fall three years after the gift is made and drops gradually to zero over the following four.
“But watch out for the pitfalls – for instance, you can’t simply sign over a house and carry on living there. Your relatives could be stung for the full 40 percent tax bill if you do, potentially with other tax charges on top.”
Gift to a charity
Many people choose to make charitable gifts in their wills.
Ms Boyle said: “Although not always considered part of estate planning, such gifts can reduce the inheritance tax rate on death from 40 percent to 36 percent if used in the correct way.”
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