Inheritance tax, also known as “death duties,” is a tax that is levied on the estate of a deceased person in the United Kingdom. The tax is paid by the executor or administrator of the estate on behalf of the deceased, and it is calculated based on the value of the estate as well as any gifts or transfers of property made by the deceased in the seven years prior to their death.
There are several ways to reduce the amount of inheritance tax that may be due on an estate in the UK. These include:
- Making gifts: One way to reduce the amount of inheritance tax that may be due on an estate is to make gifts to loved ones during your lifetime. The tax-free threshold for gifts made during your lifetime is currently £3,000 per year. Additionally, you can make unlimited gifts of up to £250 to as many individuals as you like each year, as long as you do not make any other gifts to them in the same tax year.
- Using exemptions and reliefs: There are several exemptions and reliefs available that can help to reduce the amount of inheritance tax that may be due on an estate. For example, the “spouse exemption” allows you to leave unlimited assets to your spouse or civil partner tax-free. There is also a “charity exemption” that allows you to leave unlimited assets to a charity tax-free.
- Setting up a trust: Another way to reduce the amount of inheritance tax that may be due on an estate is to set up a trust. There are several different types of trusts that can be used for this purpose, including life interest trusts, discretionary trusts, and bare trusts. Trusts can be a complex area of tax law, so it is important to seek professional advice before setting one up.
- Making a will: It is important to make a will to ensure that your assets are distributed according to your wishes after your death. A will can also be used to appoint an executor who will be responsible for managing your estate and paying any inheritance tax that may be due.
- Taking out insurance: If you are concerned about the potential impact of inheritance tax on your estate, you may want to consider taking out insurance to cover the tax. There are several different types of insurance available, including “inheritance tax insurance” and “family protection insurance,” which can help to ensure that your loved ones are not left with a large tax bill after your death.
In summary, there are several ways to reduce the amount of inheritance tax that may be due on an estate in the UK. These include making gifts, using exemptions and reliefs, setting up a trust, making a will, and taking out insurance. It is important to seek advice when planning for inheritance tax, as the rules and exemptions can be complex.
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