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Avoiding The Inevitable

13th May 2018

Avoiding The Inevitable

Who wants to pay more tax than they have to? No-one, obviously. So it’s good news that with careful planning you can usually reduce – or even eliminate – liability for at least one tax: inheritance tax. It’s sometimes called ‘the voluntary tax’ for that reason.

The usual way of avoiding inheritance tax is to leave your estate to your spouse or civil partner. Such gifts are completely free of tax. Gifts in your lifetime to anyone else are also tax-free provided you live for more than 7 years afterwards.

The nil rate band (NRB) is another tax saver. This is the sum you can gift in your will – currently £325,000 – which is taxed at 0%. If your estate is valued at above this level, it is potentially taxed at 40%. If you do not use up your NRB with gifts to non-exempt beneficiaries, then any percentage remaining can be transferred to your surviving spouse or civil partner.

But beware if you are not married and have assets above the NRB: tax of 40% will be payable on your estate above £325,000. In this situation tax planning measures are even more important.

Another common way to avoid tax is to reduce the value of your estate by giving it away in small chunks. You are allowed to make unlimited gifts out of ‘surplus income’. Paying for a grandchild’s school fees is a common way of doing this. You can also give away up to £3,000pa from savings and investments. Obviously, you need to take care not to give away more than you can afford. Another tip is to keep a good record of such payments in case the taxman makes enquiries somewhere down the line.

If you own a business or farmland you should be able to avoid paying any tax on those assets. Business property relief of 100% applies to an interest in a business. It applies to a sole trader business, a partnership or a limited company. It is based on the whole value of the share in the business less any liabilities, rather than on the value of individual assets.

Agricultural property relief applies to the agricultural value of farmland and farm buildings for a working farmer. It is also available where farmland is owned by an investor (rather than a farmer) if it has been owned for 7 years.

Although tax may be inevitable generally, with careful planning you can reduce how much is paid on your estate, often to zero.


For more information about saving or avoiding inheritance tax, click here.