The key inheritance tax planning strategies families can use to minimize their tax liability
Inheritance tax (IHT) planning can be complex, especially for families. However, with some proper planning, you can minimize your tax liability and ensure that their wealth is passed on to their loved ones rather than to the taxman. In this blog post, we will explore some key IHT planning strategies that middle-class families can use to minimize their tax liability.
Gifting in your lifetime
One of the most effective ways to minimize IHT liability is to make gifts during your lifetime. Gifts made more than seven years before your death are generally exempt from IHT. Additionally, gifts made out of income rather than capital can also be exempt from IHT. However, it is important to note that gifts must be made with the intention of reducing your estate's value, and you must not retain any control over the gifted assets.
Is a Trust right for you?
Another effective IHT planning strategy is to use trusts. Trusts can help you pass on your assets to your beneficiaries while still retaining some control over them.
For example, you could set up a trust that allows your children to benefit from the income generated by your assets while still retaining ownership of those assets. This can help to minimize IHT liability, as the assets are technically no longer part of your estate.
It is essential to have a properly drafted will that takes into account IHT planning. For example, you could set up a trust in your will to hold your assets and distribute them to your beneficiaries in a tax-efficient way.
Inheritance tax exemptions and reliefs
Another way to minimize IHT liability is to take advantage of the IHT exemptions and reliefs available. For example, there is a nil-rate band of £325,000 that is exempt from IHT. Additionally, there are other reliefs available, such as the spouse or civil partner exemption, which allows you to pass on your assets to your spouse or civil partner without paying any IHT.
In conclusion, IHT planning can be complicated, but with some proper planning, middle-class families can minimize their tax liability and ensure that their wealth is passed on to their loved ones. It is essential to seek professional advice to ensure that your IHT planning strategies are effective and comply with all legal requirements.
