Avoiding Inheritance Tax
Quite why Inheritance Tax is so unpopular is sometimes hard to see, especially in light of the fact that it can be avoided in so many ways, and completely legally. Granted, inheritance tax deals a cruel blow to those who have worked all of their lives to have something to pass on tot their family and to causes they believe in, but with a little forward planning much of what you might otherwise have given to the state can be given to those you might consider more deserving
Quite why anyone would write so many loopholes into a tax is beyond comprehension, except for the fact that the government may feel it unlikely that anyone would take care of all of the loopholes to such an extent that they became exempt from Inheritance Tax altogether. In fact, many of the loopholes require the kind of planning that persons might rather not undertake: With many people not even taking time to make a Will, the government who drafted the existing inheritance tax laws shrewdly calculated that many loopholes, whilst giving the appearance of generosity on their part, would never be taken full advantage of by those liable to pay.
How do you make sure that you do not fall into this category? Well, firstly, take advantage of the £3’000 per year dingle cash gist allowance that you are legally entitled to, taking into account that it can be rolled over from one tax year to another. Following that, be sure take advantage of the wedding gift allowances you can write off against tax (see related article). By using as many £250 single cash gift payments as you wish you can save further tax, by giving to those who may need money now, and not specifically when you have passed away.
On top of this you may wish to give property away to your children and avoid tax in your own life time by taking advantage of the Seven Year Rule – which will exempt the gift from tax providing you stay alive for a further Seven Years.
If you are married or in a Civil Partnership, you may take advantage of the fact that married couples share tax allowances, following upon government announcements made in October of 2007 (see related article for further information). Essentially this allows you to double the tax free allowance that will be passed on to your children. Totalling £600’000 and with gifts made under the Seven Year Rule, you could well exempt over a Million pounds from taxation – well worth it if you like having the last word!
You may further avoid tax by donating to a charity, political party or donating notable artworks to National Art Gallery. This enables you to choose at least to choose where your remaining money goes.
Money can be left to a trust fund, allowing you to leave money in your lifetime, but with conditions on it. This may be particularly useful if you are leaving money to the young, who may otherwise spend their money unwisely. However, problematically, money left in a trust fund amounting to more than £300’000 will be taxable immediately, even in the life time of the benefactor. A trust fund can be left to several benefactors, meaning that it allows you to take care of what may be left to whom: 1) In your own lifetime; 2) When you are healthy enough o make decision; 3) When the beneficiary most needs it, or when you project that they may need it.
These are the main ways to avoid paying inheritance tax. For further help it is possible to get legal advice, or other financial advice (see related articles).