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How to Escape Inheritance Tax the Legal Way ?
- Posted by: curtislegalwp
- Category: News
What is inheritance tax?
Inheritance tax was first introduced in 1986. It is a tax that needs to be paid on the property or cash of some people after they die. Currently, the rate is set at 40 percent of all assets that exceed £325,000, so it really only applies to those who leave significant wealth behind when they die.
Important things you should know about inheritance tax
There are some quite straightforward ways of avoiding inheritance tax, such as:
If you leave the whole of your estate to your spouse, a partner or a charity, this exempts you from paying any inheritance tax.
Giving your home away to your children or your grandchildren results in an increase in your inheritance tax threshold to £450,000. This change in threshold also applies if you leave your home to adopted children, step children and foster children.
Other simple ways to avoid paying inheritance tax
One easy way to avoid inheritance is to keep your assets below the taxable amount of £325,000. Whether you are able to do this or not will partly depend on the value of your home. If your home is valued above this threshold you can sell the property, downshift to a smaller or cheaper property and give away any remaining assets to your children before you die. This means your children or the persons you have named in your Will should not have to pay any inheritance tax on your behalf if you are worth less than £325,000.
Easy fix solutions to minimising your assets
An easy way of minimising inheritance tax is to dispose of your assets before your death. Either give your assets away in advance to those people who might have been in your Will anyway, or spend your assets yourself. Of course, most people do not know in advance when they are going to die and generally prefer to keep hold of their assets until the last minute, which perhaps explains how HMRC still manages to earn a tidy sum from inheritance tax!
Give a gift to your spouse or partner.
Give cash to family members and your friends.
Leave some of your money to your preferred charity.
Pay for life insurance.
Set up a trust which potentially avoids paying inheritance tax on the property you own.
Spend all the assets you can so that you stay below the threshold for inheritance tax.
Setting up a trust may be an option to avoid inheritance tax
If you are likely to leave behind very large amounts of money you can avoid paying inheritance tax by setting up a trust that allows you to give money, investments or property to someone else to take care of for the benefit of a 3rd party. A common example of a trust is placing money in trust for your spouse or children.
A trust involves creating two key roles. The first role is that of the trustee who owns and manages the trust’s assets, while the second is the beneficiary. So, setting up a trust means you, the original asset holder, no longer own the assets, so you can avoid paying inheritance tax.
Talk to your solicitor in advance about how to minimise inheritance tax
If you decide to set up a trust to avoid paying inheritance tax or want to discuss other ways you can minimise paying tax legally, you should ensure you are well informed by talking to your solicitor first.