Minimize Your Inheritance Tax Bill

inheritance tax bills by gift
Minimize Your Inheritance Tax Bill

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Now, for those investors who are wondering what to do so as to reduce their inheritance tax bills, here are some five ways that I reckon should work best for you. More and more middle-class families find themselves impacted by the inheritance tax bill because of the rising prices of assets.

1) Pass on your pension

The first tip are Gary Smith, a financial planner at Tilney Best said, that one of the conversations that he frequently holds with his clients is about re-educating them about how a pension is used as a vehicle for the inheritance tax bill since it can be passed on to their next of kin in the client’s estate. He added that the rules changed during the previous year which made it easier for people to safeguard pensions for their heirs, as pensions are not included as part of a person`s estate for purposes of the inheritance tax bill. That means that pension can be passed on entirely, meaning that they would not be subject to taxation. Living on your ISAs rather than on your income will enable your pension to be passed on without it being taxable. However, it’s not as easy as it sounds since some pensions do not have a setup that allows this, especially if the plan is to use it as the key pillar of the inheritance tax bill planning.

2) Converting your portfolio into AIM or EIS companies

Business property relief can be used as a very effective planning tool since it makes the value of transferred assets liable to the inheritance tax bill drop by 50 per cent or even 100 per cent. Business property relief includes the transfer of shares in an unquoted company which allows for the 100 per cent relief on your inheritance tax bill. This relief that can be passed on while the owner is alive or through a will van be obtained by simply filling in a form given by the government.

3) Give assets away seven years before one dies

Many people leave instructions on how to distribute the assets in their will when the assets have already become part of their estate for inheritance tax. There are those people who distribute assets as gifts when they are very elderly, but gifts are used in the valuation of your estates for seven years. It should be noted that gifts from normal income are not taxed. Those taxed are those of higher value, such as property or large amounts of money. Meaning that if you give a large gift and die within seven years of giving it, the gift will be taxable.

4) Leave things to charity

One of the misgivings of planning is that if you leave 10% of your estate to charity, the amount of inheritance tax to be paid drops from 40 percent to 36 percent, meaning that you can pass on 90 percent of your assets to the next of kin, but they would benefit from a huge saving on the amount of tax paid.

5) Insure your liabilities

One of the methods most commonly used when mitigating an inheritance tax liability is the whole of life insurance policy. This insurance policy is written in trust hence the resulting income is not part of your estate. Therefore, the income is not subject to inheritance tax.

Making investment decisions are not easy. Don’t hesitate to contact us with your questions. We are here to help!

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