Extra individuals hit by inheritance tax however there are alternatives for paying much less

Rising costs for homes and different property imply more people are being hit by inheritance tax.

The 40 p.c tax applies to any inherited property above the brink, which is £325,000 for an quantity inherited from a single individual or £650,000 from a pair.

This tax invoice can quantity to tens of hundreds of kilos and needs to be paid earlier than six months after the individual has died.

Receipts for the tax hit £600million in April 2023 in response to HMRC figures, which is £100million greater than April 2022.

Fortunately, there are a number of methods an individual can prepare their funds to cut back the quantity of their property that may be hit by the tax once they move it on to their buddies or family members.

READ MORE: Ditch ‘flawed’ Pension Credit for £1,280 ‘living’ state pension, campaigners demand

Alex Davies, CEO and Founder of Wealth Club, stated: “In some circles, inheritance tax is already called the voluntary tax because so much can be avoided or mitigated through government backed investment schemes and careful tax planning.

“Writing a will is a good start. If you don’t your assets will be distributed according to intestacy rules and could be subject to IHT which could otherwise be avoided.”

One widespread approach for an individual to cut back their inheritance tax legal responsibility is to cut back the scale of their property by gifting away IHT-exempt items.

Mr Davies defined: “Gifts taken out of regular income, which are not deemed to affect the giver’s standard of living, are inheritance tax free on day one – as are certain smaller gifts.

“Timing is key as you can give unlimited amounts away but typically these take seven years to be completely inheritance tax free.

“Of course, once you give away the money you’ve lost control. If you need it back for an emergency, that’s not an option.”

An individual may give away as much as £3,000 a 12 months cut up between any variety of individuals, and may individually give a present of as much as £250 to any variety of individuals.

An particular person may reward a bigger quantity however they must reside for one more seven years for this bigger reward to keep away from IHT.

There can also be the choice to present tax-free items to an individual who’s getting married or getting into a civil partnership.

This contains as much as £5,000 to a baby who’s getting married, £2,500 to a grandchild or great-grandchild, or £1,000 to another individual.

Mr Davies additionally stated an individual can scale back their legal responsibility by investing in firms that get Business Property Relief. These investments will often grow to be IHT-free after two years.

He additionally talked about the choice of AIM ISAs, the place the funds are invested in companies that qualify for Business Property Relief. Mr Davies warned it is a “riskier” funding however after two years the funding could possibly be exempt from IHT.

Funds invested in different forms of ISAs will not be inheritance tax free. However, funds in a pension are sometimes not topic to inheritance tax.

Alec Collie, head of Medical at Wesleyan, urged individuals to contemplate investing in pensions to cut back their IHT legal responsibility, significantly after a current change to pension guidelines.

He stated: “Another announcement made by Jeremy Hunt in his latest Budget was to increase the annual allowance – the amount of money that people can put into their pension every year without paying tax on it – from £40,000 to £60,000.

“The Lifetime Allowance is due to be scrapped from April 2024 too. Though this plan hasn’t been finalised yet, the LTA tax charge on pension savings in excess of the LTA has already been abolished.”

He additionally recommended transferring funds right into a belief as these will now not be thought of a part of an individual’s property once they die.

Mr Collie stated: “There are many types of trusts and some trust arrangements do allow access to the original funds. It’s a complex area, so proper advice should be sought when making these arrangements.”

For the newest private finance news, observe us on Twitter at @ExpressMoney_.