Understanding Inheritance Tax
& How To Mitigate It

Inheritance tax (IHT) is a tax on the estate of someone who has died. In the UK, the standard IHT rate is 40% on the value of an estate above the tax-free threshold, which is currently £325,000. However, there are several ways to mitigate IHT through careful estate planning.

Key Strategies to Reduce Inheritance Tax:

1. Use of Nil-Rate Band: Each individual has a tax-free threshold (nil-rate band) of £325,000. If you leave your home to your children or grandchildren, you may also qualify for the residence nil-rate band, which is an additional allowance.
2. Gifting Assets: You can reduce the value of your estate by gifting assets during your lifetime. Gifts made more than seven years before your death are usually exempt from IHT.
3. Annual Exemptions: Take advantage of annual gift exemptions. You can give away up to £3,000 each year without it being subject to IHT.
4. Charitable Donations: Gifts to registered charities are exempt from IHT. If you leave at least 10% of your estate to charity, you may qualify for a reduced IHT rate of 36%.
5. Trusts: Setting up trusts can help reduce IHT liability. Trusts can be used to pass on assets while maintaining some control over them.
6. Life Insurance: Taking out a life insurance policy written in trust can provide funds to cover the IHT liability, ensuring that your beneficiaries receive the full value of your estate.
7. Business Relief: Certain business assets may qualify for business relief, which reduces the value of the assets subject to IHT.

By implementing these strategies, you can effectively reduce your IHT liability and ensure that more of your estate is passed on to your beneficiaries.