Inheritance tax explained: How to save money on your IHT bill

Inheritance tax explained by Interactive Investor expert

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

IHT is the tax on someone’s estate after they have passed away, which includes their money, estate and possessions. No inheritance tax is paid on estates which are valued at the £325,000 inheritance tax threshold if any money over this amount is left to a spouse, civil partner or charity. However, recent increases in IHT receipts are leading many people to look for ways they can save money on their tax bill.

Receipts for IHT came to around £6.1billion in the 2021/22 financial year, which is a rise of 14 percent or £729million from the year before.

This is now the highest level on record and is a continuation of an upward trend in inheritance tax which began in 2009/10.

Experts believe that the increase in the number of estates being liable for the levy is due to the introduction of the residence nil rate band (RNRB).

The RNRB is the extra amount of money that can be passed on death without any inheritance tax being payable.

READ MORE: State pension set to rise next year but 520,000 people will miss out

It should be noted that of the 612,000 deaths in the UK in 2019/202, there were 23,000 liable to pay inheritance.

This is the equivalent to 3.76 percent of deaths in the country or about one in every 27 estates.

Recently, the Government froze the inheritance tax nil band rates which is pushing more people into paying the levy.

Taxpayers are paying more as house prices are continuing to go up while the threshold for paying IHT remains the same.

In light of this, households are looking for ways to legally reduce their liability for the tax in order to save money.

Examples of inheritance tax-saving measures include making financial gifts to families on any amounts over the £325,000 threshold.

Furthermore, people often choose to place their money into trusts in a bid to save their money from being taxed.

Financial experts are sharing advice with the British public on saving their money from IHT as receipts continue to rise.

READ MORE: Britons in higher bracket can do 2 main things to reduce tax payments

Stephen Lowe, a group communications director at Just Group, shared how people can save on their inheritance tax bill.

Mr Lowe explained: “High quality financial planning can help mitigate against future Inheritance Tax charges, even for those leaving more modest sums.

“Where estates are valued at less than £1million, the bulk of the value is held in residential property and cash.

“One simple mechanism for reducing inheritance tax is to gift money that will not be needed in the years before death, which also brings the non-financial benefit of seeing loved ones enjoy that money and put it to good use.”

The tax expert also cited mortgages as a way in which homeowners can protect their assets from being liable for IHT.

He added: “Lifetime mortgages are increasingly being used to release some of the value tied up in property so that it can be gifted to children early, perhaps to put down a deposit on their own home or to pay school fees.

“This growth has been helped by low interest rates and the introduction of more flexible options such as interest-servicing on lifetime mortgages meaning the size of the loan does not increase over time.

“Using the wealth tied up in bricks and mortar can help people meet their goals in later life, whether that is to use that wealth to boost consumption in retirement or to bequeath it in a tax-efficient manner.”

Source: Read Full Article