What is UK Inheritance Tax?

UK Inheritance tax is a tax that is payable on any estate (property, money, and possessions). 

Current Inheritance Tax rate

A 40% tax is charged on the part of the estate above the threshold. The current standard tax-free threshold is £325 000. e.g. On an estate worth £500 000, 40% is charged only on £175 000. (the tax threshold may differ according to certain circumstances)

How to lower UK Inheritance Tax liability

It is possible to decrease the tax liability on an estate by utilising some options.

• Gifting your assets – this is one of the easiest ways to reduce the inheritance tax liability. You can gift money to family and friends. This amount is not taxable unless it exceeds the allowance, and you don’t survive 7 years after gifting them. Currently it’s up to £3 000 per tax year. (Gifts from normal income is exempted.)
• Give your home away – if you give your home to your children or grandchildren, then your threshold could increase to £500 000. That’s £175 000 property allowance and £325 000 tax free allowance. This could increase to £1 000 000 for a married couple (£350 000 property allowance and £650 000 tax free allowance)
• Trust planning – Putting your estate in trust could reduce your Inheritance tax liability depending on individual financial circumstances.
• Leave money to charity – You can potentially reduce the tax rate if you leave 10% or more of your estate to charity. This applies only to amount of your estate over the lifetime allowance of £325 000.
• Leave estate to spouse – Your spouse or civil partner is exempt from any tax on assets left to them if they are UK citizens. When they pass away, they inherit your lifetime allowance and can add it to their lifetime allowance. This increases the tax-free portion of the estate value.
• Life insurance policy – This is one of the easiest ways to ensure inheritance tax is covered. If you have a very large estate and Inheritance tax is inevitable, a life insurance policy should cover these costs, provided it is written into trust, so it does not form part of the estate. *

It is always advisable to chat to your financial adviser about lowering inheritance tax costs, as each individual’s financial circumstances are unique and not all options may be suitable for your needs. [email protected]
* https://www.which.co.uk/

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.