Inheritance tax rates: How to avoid paying 40% tax on your estate | Personal Finance | Finance


Inheritance planning is something which many people put off, but having an understanding of the ins and outs is vital to avoid paying more tax than is necessary and taking money out of the pockets of surviving family members. Here is a breakdown of how inheritance tax works in the UK.

Can the threshold be increased?

There is a way to increase the threshold up to £500,000 and thus avoid paying IHT for people whose estate is lower than that amount.

This can be done by giving away someone’s home to their children or grandchildren.

Another potential way of stretching the threshold is passing on any unused amount to a spouse.

However, the rate is only charged on the part of someone’s estate which goes above the threshold.

As an example, someone with an estate worth £400,000 and a tax-free threshold of £325,000 would only pay IHT on £75,000.

It is possible to pay IHT at a lower rate of 36 percent, providing a person leaves 10 percent or more of the net value of their estate to charity in their will.

People can avoid IHT on their home by passing the property on to their husband, wife or civil partner when they die.

It is also possible to reduce an IHT bill by giving gifts, but there are some rules in place which mean inheritance tax may have to be paid after someone’s death on gifts given less than 7 years before they die.

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