It does not have to be. There are a number of ways one can significantly reduce this tax with a little bit of estate planning. Here are 5 tips you need to keep in mind when it comes to IHT:
1. Gifts from disposable income
This is actually an HMRC concession that most people are unaware of. It relates to the ability to give away an unlimited amount provided it qualifies as "normal expenditure out of income" and it is arguably one of the most useful IHT exemptions. It is also very flexible, because you don't have to gift the same amount every year or make the gifts to the same person. Many people use the exemption to pass on money on a regular basis to children or grandchildren. It is important to remember however that the exemption is not given automatically and has to be claimed retrospectively by the executors of your estate. For the gifts to qualify, you must be able to show that the payments are made out of surplus income - either earned income or investment income - and that they do not reduce your standard of living and in particular you cannot pass on income and then use your capital to supplement living costs.2. Gifts of capital survived 7 years
There is a way to give your whole estate away and pay no tax at all. As long as you survive the gift by 7 years or more. This type of transfer is known as a "Potentially Exempt Transfer" or a PET. It is important to bear in mind that when making a large gift it has to be in excess of the nil band rate (NBR) to benefit from any potential reduction in the potential tax due as a result of the taper relief. In addition it is also important to be aware that any gift made essentially uses up the nil rate band and could push the remaining estate into a full rate of tax with no relief at all for the subsequent 7 years.Keep in mind that if you give your estate away, you don't control it anymore. Something that many people are reluctant to do. But there is another option. Please read on....
