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Antony Antoniou – Luxury Property Expert

Six Effective Strategies to Legally Avoid Inheritance Tax

Six Effective Strategies to Legally Avoid Inheritance Tax

Inheritance tax, often deemed as Britain’s most unpopular charge, was once only a burden for the wealthy. However, the soaring value of properties has resulted in an increasing number of families being ensnared in the inheritance tax trap. Recently, HM Revenue and Customs reported record-high IHT receipts, reaching £7.1 billion, highlighting the urgent need for families to explore ways to protect their wealth. So, how can you avoid this dreaded tax and preserve your loved ones’ inheritance? Here are six simple and legal strategies to consider:

1. Transfer Assets to Your Spouse:

If you’re married or in a civil partnership, you have a powerful tool at your disposal. You can pass on assets of any value to your spouse without incurring any inheritance tax liability. Since 2007, spouses can also inherit their partner’s unused nil-rate band, potentially raising their allowance to £650,000. However, remember to make a formal claim to HMRC within two years of your spouse’s death to secure this benefit.

2. Leave Your Home to Your Children:

For many families, their property represents their most significant asset. Fortunately, there is an additional allowance called the “residence nil-rate band” that applies if you leave your main property to your direct descendants. This allowance, combined with your spouse’s, allows you to pass on up to £1 million without incurring inheritance tax. Be aware of age restrictions and ensure the property goes to children or grandchildren, not siblings or other relatives.

3. Give Away Money:

One of the simplest ways to avoid inheritance tax is by making lifetime gifts. Regular gifts from your surplus income can be highly tax-efficient. These must not substantially impact your lifestyle and should be part of a consistent pattern. Keep detailed records of these gifts to present to HMRC if needed. Additionally, every individual has a £3,000 annual exemption, which can be carried forward for one year, allowing you to give away up to £6,000 tax-free. There are further allowances for wedding gifts and small gifts up to £250 per person per year.

4. Understand the Seven-Year Rule:

Gifts exceeding £3,000 can be made without immediate inheritance tax consequences, provided you survive for at least seven years after making the gift. Such gifts are known as “potentially exempt transfers.” If you pass away within the seven-year window, taper relief will apply to the gift, reducing the tax payable. Many families fall foul of this rule, resulting in increased IHT bills, so it may be wise to gift more at a younger age while considering your financial situation and vulnerability.

5. Utilise Pension Planning:

Your pension savings can be passed on to your beneficiaries entirely tax-free, regardless of whether you’ve accessed the funds or not. This can be a valuable strategy even if you’ve already used up other allowances. By utilizing your pension in estate planning, you can also access the funds if required for care expenses.

6. Take Out Life Insurance:

If avoiding inheritance tax entirely isn’t feasible, you can still plan for it. Life insurance policies can cover the tax bill when it becomes due, so your beneficiaries don’t have to bear the burden. Place the policy inside a trust to shield it from your estate and prevent it from increasing the IHT liability.


– Inheritance tax is affecting more families due to rising property values and a 20-year freeze on the tax threshold.
– HMRC reported a record-high IHT receipt of £7.1 billion, putting a heavy burden on estates.
– Inheritance tax is charged at 40% on the value of an estate above the tax-free threshold of £325,000.
– Six legal ways to avoid inheritance tax:
1. Transfer assets to your spouse or civil partner, who can inherit without IHT liability.
2. Leave your home to your children to benefit from the “residence nil-rate band” allowance.
3. Make regular gifts out of surplus income and use the £3,000 annual exemption.
4. Understand the seven-year rule, where large gifts become exempt after seven years.
5. Utilize pension planning to pass on the pension pot tax-free to beneficiaries.
6. Take out life insurance to cover the IHT bill and protect beneficiaries from the burden.
– Seeking professional financial advice is crucial to tailor these strategies to individual circumstances.

As inheritance tax impacts more families than ever, it’s crucial to be proactive in safeguarding your wealth and protecting your loved ones’ inheritance. By considering these six legal strategies, you can minimize or even eliminate the inheritance tax burden, ensuring your assets are passed on as you intend. Always seek professional financial advice to tailor these strategies to your specific circumstances and secure a brighter financial future for your family.

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