10 Ways to Legally Reduce Inheritance Tax

Inheritance tax can be a significant burden on families. However, there are several legal ways to avoid or reduce this tax burden. The Daily Mail goes through some of the strategies mentioned in this article including:

1) Gifting: You can gift up to £3,000 per year, plus unlimited small gifts of £250, without incurring inheritance tax. Additionally, married couples and civil partners can give each other unlimited sums tax-free, as long as their partner lives in the UK.

2) Trusts: Setting up a trust allows you to have more control over how your money is distributed to your beneficiaries. Trusts can be a good option if you want to pass money to young children who may not be able to manage it themselves.

3) Life insurance: Putting your life insurance policy in trust ensures that the payout goes directly to your beneficiaries, bypassing inheritance tax.

4) Pension pots: Passing on your retirement savings to loved ones can be done tax-free if you die before the age of 75. If you are older, the beneficiaries may have to pay income tax on the inherited pension.

5) Supporting a cause: Giving to charities or political parties can reduce your inheritance tax rate from 40% to 36% if you bequeath at least 10% of your net estate to charity in your will.

6) Property handover: Gifting your home to your children and paying them rent can keep the property within the family while reducing inheritance tax. However, it is important to ensure that the transaction is done at market value and that appropriate rental agreements are in place.

7) Home ownership: Switching from being “joint tenants” to “tenants in common” allows you to leave your share of the property to someone other than the joint owner, potentially reducing inheritance tax liability.

8) Owning a business: Passing on a family business can qualify for business property relief, providing protection from inheritance tax. However, certain conditions must be met.

9) Boosting enterprise: Investing in small companies that qualify for business property relief can also reduce inheritance tax liability. It is important to carefully research and diversify investments in this area.

10) Farming and forestry: Specific rules and reliefs are available for farming and forestry assets, such as agricultural relief and woodland relief. Professional advice is often necessary in these cases.

The priority of which strategies to use will depend on individual circumstances and objectives, and it is advisable to seek professional advice to ensure that the most effective approach is taken.