Money tips #91 to 98 – 15 ways to cut your potential Inheritance Tax bill (Part II)

2 min Read Published: 06 Aug 2010

Here is the second part of our guide on how to mitigate inheritance tax.

The first part of our guide can be found by clicking here.

Tips on how to slash your IHT bill continued:

8 ) Give to political parties or charities (money tip #91) – No IHT is payable on gifts to charities and political parties (surprise surprise) irrespective of the size of the donation.
 9) Gift money out of regular income (money tip #92) - You can gift away as much as you wish from your regular income as long as your standard of living is maintained. But beware as ‘income’ does not include that from investment bonds.
 10) Simply give away your assets (money tip #93) - directly giving away your assets is known as a potentially-exempt transfer (PET). These gifts will not be included in your estate, and so will be free of IHT, a long as you live for 7 years from the date of making the gift. If you die within seven years, you do not pay IHT at the full 40 percent of the original gift value. Instead "taper relief" reduces the liability to 80 percent of what would otherwise be due after three years, 60 percent after four, 40 percent after five and 20 percent after six. But before you start throwing money around like confetti, remember that you may live to a ripe old age so it's best to keep sufficient back.


 11) Live the high life (money tip #94) – as we all know when it comes to money, you can’t take it with you. So if you are worried that your excess wealth is simply a tax bill waiting to happen then go out in style.


 12) Consider trust planning (money tip #95) – Trusts are a useful tool when considering estate planning. Depending on the type you choose, it can still be possible to enjoy an income from money paid into trust, even though you are no longer the legal owner of that money. They can be used to potentially reduce your IHT liability, by reducing your estate, but there are tax implications. Again speak to your financial advisor and solicitor.


 13) Consider investments that attract IHT relief (money tip #96) - certain investments attract preferential IHT treatment, such as AIM-listed stocks, forestry and woodlands. But seek advice as they are not for the feint hearted, especially AIM stocks which are very volatile investments.

   14) Take out insurance (money tip #97)– it is unlikely that you will mitigate an entire IHT liability in which case a simple solution is to take out life insurance. By taking out insurance on your own life with a sum assured that matches your potential IHT liability means that upon your death the IHT bill will be covered. The cost of insurance premiums depends on your age and health. The advantage of this approach is that your beneficiaries can pay the IHT without having to sell assets, plus it helps speed up probate. A typical solution would be a whole-of-life policy written under trust so the benefits fall outside of your estate. The premiums will also be deemed a gift out of income, as the policy is for someone else’s benefit, so will be IHT exempt. 

15) Pay in instalments (money tip #98)- if you are a beneficiary and are lumbered with a large IHT which you need to pay, remember, that you may be able to pay in instalments. Usually IHT must be paid within six months from the end of the month in which death occurs. But for some assets, such as land and buildings, the tax bill can be deferred and paid in instalments over 10 years. However, should you sell the asset in that time then the balance of the IHT bill is payable immediately.

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