Q&A Friday! Is there anything you can do to reduce your inheritance tax bill?

Contrary to popular opinion, inheritance tax (IHT) is not just a death tax. Your actions in life can affect your IHT liability at death, for better or worse. The question is, is there anything you can do to reduce your inheritance tax bill in your lifetime?

Here are 3 top tips you can put into action now so more of your wealth goes to your loved ones.

Your property

If you are a homeowner and have children, you may already be taking it for granted that you hope to pass on your home to your kids after your death. After all, your home might be the biggest largest investment you have in your lifetime.

An option that you may not have thought about is gifting your children with some or all of your property, whilst you are still alive. For inheritance tax purposes this could mean that the share of the property you gift to your children is disregarded when reviewing your IHT liability position.If you are considering passing down the family home anyway to your children, why pay more tax when you don't necessarily need to?But of course takes, this decision takes careful consideration, and although tax efficient, may not necessarily suit your personal needs or something you are comfortable to do.

Make a gift

Another option if you are property owner is to take out a loan on your home, otherwise known as equity release, and make a cash gift to a loved one, which will be considered an 'exempt transfer'.This is important, as on your death your gifting will be reviewed over a seven year period from the date of your death (and sometimes longer depending on what and when you gifted to loved ones).So part of your property value will be exempt from IHT as it has been gifted, and furthermore, if you do not pay off the loan before death, it will be seen as a liability on your estate, and will be paid off before your IHT bill is calculated.The loan of equity release does not have to be a commercial loan either.  It could come from a wealthy family member provided that you have not previously made gifts to him or her already.

Do you know about SIPP's?

A Self-Investment Pension Plan (SIPP), a type of pension plan, can be passed on to a loved one if set-up correctly and gifting of the SIPP recorded in advance of your death.If you die before the age of 75, the funds from the SIPP can be transferred to the loved one, tax free.If your death occurs after you are 75, your loved one will only be taxed at their marginal rate if they take all of the funds in one lump sum or as income.  Alternatively, they can transfer the inherited SIPP into their own SIPP.The good news is that if you die before or after age 75, the funds held in a SIPP or any pension plan will not farm part of your estate for IHT purposes, so there will be no IHT to pay on your death.Please get in touch for any aspect of personal or business tax planning, we can help.