Inheritance tax warning: The big changes happening in 2022 – will you be affected?
Inheritance tax explained by Interactive Investor expert
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Typically, Britons are exempt from paying Inheritance Tax if an estate is worth £325,000 or less. However, in the past they have still had to alert HMRC but that’s all about to change.
Inheritance Tax can be complicated with many people paying money to HMRC which could be avoided.
Big changes have been announced for the coming year and one amendment that will make life easier for an estimated 230,000 Britons is that they won’t have to contact HMRC when there’s no Inheritance Tax to pay.
Although it won’t necessarily save people money, it could save grieving families an extra headache at an already difficult time.
HMRC announced the change just this month and says it will reduce administrative burdens on families at a difficult time when a family member has passed away.
The decision to simplify the process follows recommendations by the Office of Tax Simplification (ONS) made back in 2018.
On its website, HMRC also highlights that it’s made a change to the relevant monetary limits allowed.
- the limit for the aggregate of chargeable transfers and exempt ‘normal out of income’ transfers made prior to death is increased from £150,000 to £250,000
- the limit for chargeable trust property is increased from £150,000 to £250,000
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How to avoid paying Inheritance Tax
Inheritance tax is a tax on the property and assets of someone who’s died but brushing up on the rules could save Britons a fortune. Usually, there is no tax to pay if:
- The value of one’s estate is below £325,000
- Someone leaves everything over £325,000 to a spouse, civil partner or charity
However, it’s important to be aware that people will be taxed at 40 percent on anything above the £325,000 threshold if none of the exemptions can be applied.
Most people are caught out when it comes to property but people can also be hit with an unwelcome charge when giving gifts.
HMRC has introduced new guidelines to help people avoid getting caught out if they plan on giving cash sums, property or assets to family members this year.
Gifts that are exempt from a 40 percent tax bill include assets passed to a spouse or civil partner, gifts to charities, and gifts that are made seven years before the person dies.
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Other exemptions include gifts of £3,000 or less in any tax year, small gifts of £250 or less and wedding and civil partnership gifts.
However, previous annual allowances can be used if they haven’t already, which is a clever way of reducing how much tax someone needs to pay.
Married couples can also make use of each other’s allowances.
To make the most of these allowances and avoid giving all one’s money to HMRC, experts advise that Britons seek independent financial advice.
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