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How to Pay Less Inheritance Tax

Pay Less Inheritance Tax

UK Inheritance Tax Threshold

Currently the tax-free Inheritance Tax allowance in the UK (which is sometimes called the ‘nil-rate band’) is £325,000. An additional residence nil-rate band of £125k can be claimed if a main residence is left to a direct descendant. The rate of Inheritance Tax is currently 40% and it is payable on the value of your estate which exceeds the nil-rate band threshold. How can you pay less Inheritance Tax? We have set out 6 key ways to reduce the amount payable:

A Gift to Your Partner If you are married or in a civil partnership, you can pass your estate to your spouse or civil partner tax-free when you die. Any unused tax-free allowance can also be passed on to the survivor’s estate. A gift to a partner who isn’t your spouse or civil partner will incur an Inheritance Tax charge.

Make a Will – One in three of us will die without making a will, which means when you pass the assets will be distributed according to the rules of intestacy. This could lead to a higher Inheritance Tax bill which could otherwise have been avoided.

Gifts to Family Members or Friends – Unfortunately gifts to individuals other than your spouse or civil partner are included in your estate for Inheritance Tax, unless the gifts are made at least seven years before you die. You can give away up to £3k each year without paying Inheritance Tax. Beware however as there might be capital gains tax to pay on gifts of certain assets.

Put Assets into a Trust – You can put assets in a trust so that they will not form part of your estate, for Inheritance Tax purposes. Be aware that although you could reduce Inheritance Tax, other forms of tax could be applicable. Also some types of trusts are subject to their own tax rules. Here’s some more information on the types of trusts.

Life Insurance – This will not reduce the Inheritance Tax charge but the proceeds could help family members when it comes to paying the tax bill. The life insurance proceeds must go into a trust to ensure that the amount paid does not increase the value of the estate, otherwise this would lead to a higher Inheritance Tax bill.

Leave Something to Charity – Gifts to a registered charity in your will are exempt from Inheritance Tax. This is a great way to reduce your Inheritance Tax bill and benefit a good cause at the same time. If you leave at least 10% of your estate to your charity, it will reduce the rate of tax to 36% on the remainder of your estate.

Estate planning can be complicated, so you should take advice from an expert. Maria Cosslett, Partner and Head of Probate, Wills and Trusts at Loosemores is a highly experienced lawyer, who can help you to take steps to ensure that your estate will pay less Inheritance Tax.  

Please contact Maria via:

Email –

Phone – 029 2022 4433

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