Inheritance tax warning: IHT affects 50,000 more estates – how to reduce the bill | Personal finance | Finances
HMRC released Inheritance Tax (IHT) statistics on December 21, and the data showed that £ 4.1 billion was paid to the government through the levy between April and November, an increase of £ 600 million compared to the same period in the Year 2020. IHT is only levied on relatively large estates valued at over £ 325,000, but as the value of the land increases, more families will be taxed.
She said: “If the uncertainty surrounding Omicron continues, the Chancellor may be even more tempted to consider raising personal taxes in the next household, the date of which is not yet known but could come as early as the spring.
“People should continue to weigh their tax plans carefully and make the most of the current allowances before introducing any further possible changes.
“For those who have not yet completed their Christmas shopping, giving gifts is an option that not only can help lower the IHT bill, but also, when you donate to a charity, you are supporting a cause that is really close to your heart.
“Donating to charities can provide relief that can reduce an individual’s income tax liability.
“Gifts to qualified charities are also exempt from inheritance tax, and if a person gave essentially 10 percent of their property to charity in their will, their estate would only pay an inheritance tax rate of 36 percent instead of the usual 40 percent.
“Those who feel particularly generous could even consider setting up their own charitable foundation and demanding appropriate tax breaks so that as much as possible flows into the pockets of the charities.”
HMRC notes that some gifts are exempt from IHT, particularly those given more than seven years before the person’s death, but not all gifts are exempt.
Most of the gifts that a person gives during their lifetime, with the exception of gifts that fall under an exemption, are known as potentially exempt transfers. This is because a gift is IHT exempt if the person survives seven years after giving it.
A gift can be money, property, possessions, or anything else that has value. A donation must reduce the value of the estate and the person involved must take into account the loss caused by the donation.
For example, if a person sells their house to a child for less than it’s worth, the difference in value counts as a gift.
In the case of a direct gift, the value is transferred to another person without any conditions. Some exceptions to this include trusts, gifts in which the individual retains a stake, or second-hand assets
Money Helper, the public advisory service, warned that trying to reduce the amount of IHT for an estate can be complicated. But besides gifts, Britons can potentially cut their bill by putting their assets in a trust for their heirs, leaving their estate to a spouse or domestic partner, or paying into a pension instead of a savings account.