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‘Tis The Season To Reduce Your Inheritance Tax

Christmas is a time of giving, and that can be helpful in reducing your exposure to Inheritance Tax (IHT). Our Private Client taxperts offer their top 10 tips for saving IHT if you’re considering giving a cash gift this Christmas.

  1. Gifting cash of up to £3,000 per year is exempt from IHT, however, gifts of larger amounts can be made and will still be exempt from IHT provided you live 7 years from the date of the gift.
  2. If you have significant annual income, and are struggling to spend it all, then you can get an exemption for regular gifts out of surplus income. Make sure it is well documented and is, or there is an intention to be, made regularly.
  3. Give away assets now that may have potential development value in the future, passing down the wealth creation to the next generation.
  4. If you like the idea of giving, but want to retain control over the assets, consider giving to a trust. Value of up to £325,000 can be given to a trust with no IHT payable – more if IHT reliefs are available.
  5. Provided you live 7 years from the date of transfer, family investment companies can be used to pass larger amounts of cash investments to family without the IHT cost of a trust and enables control to be retained.
  6. If you have a company and have lent money to the company, resulting in a director’s loan, that loan will be subject to IHT. You could consider capitalising the loan into shares in the company which may then attract business property relief (BPR) after 2 years.
  7. Do you own property personally that is used by your company? BPR will only be available if you have more than half of the shares in the company giving you control. Ensure the property owner has control of the company to obtain BPR at 50% and consider whether the property can be transferred to the company to achieve 100% BPR.
  8. If you have accumulated a large amount in ISA’s, these will be subject to IHT. They could be invested in shares qualifying for BPR as there is no capital gains tax payable on the sale of the ISA investments.
  9. If you want to benefit from the new residence nil rate band, remember that your estate at death needs to be less than £2m in value. Lifetime giving can help you reduce your estate to benefit.
  10. Remember, all gifts to charity are exempt from IHT –  so give generously!

If you would like more information on Inheritance Tax or the requirements of giving a financial gift, please contact the Private Client Taxperts.

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