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Tax exists in almost all aspects of life. It is found in all money transactions you make daily, whether you’re purchasing goods, collecting your earnings, or even when receiving things passed down to you. 

Let’s face it, nobody wants to pay taxes, but as citizens of the United Kingdom, it is your responsibility to pay your dues properly. When it comes to inheritance taxes, there are a few ways to reduce the rates of taxes placed upon them without needing to change your Will. There are legal details and consequences that must be paid attention to when it comes to tax planning—so be on the lookout for those too. 

Here are four ways to cut inheritance taxes—but be aware that before taking on any of these, consult legal and professional financial advisers to avoid any mishaps:

Give To Family Members Or Close Friends

Money that goes to your spouse or civil partner has different parameters when it comes to taxation. However, when you pass it down to another family member or a close friend, it is implied that this is a gift and you no longer get any benefit from it. 

This means that the said gift will only be included in your estate for inheritance tax only for seven years, and anything after that will not be taken into account.^[1] So if you give your son or daughter a sum of money and live longer than that period of seven years, calculating the inheritance tax liability when you die will not take this into account.

Limited amounts of money can be given away each year without needing to pay inheritance tax, usually at the value of £3,000 and given away to children or grandchildren—when marriage is concerned.^[1] Do note that Capital Gains Taxes may be required on certain assets given away in your lifetime, so be aware of that clause too.

Create A Trust Fund

Placing some cash, properties, or other investments and assets into a trust fund means they are no longer part of your estate for inheritance tax purposes. Trust funds have a variety of uses, such as medical support for family members with disabilities or health issues, education for your grandchildren, or other supportive purposes. 

This can be done either at the current moment or after your passing in your Will. If a trust fund is set up while you are alive, there may be Capital Gains Taxes for transferring certain assets. 

Some trusts also have their own tax parameters, and the trustees may have to pay the inheritance taxes themselves. Expert advice is recommended for setting these up in order to avoid snags or mishaps with the rules and regulations surrounding them.

Leave Estates To Charity

Anything left in the name of charity is free of inheritance tax, which is another way you can reduce your inheritance tax bill, all while benefiting a good cause. Leaving at least 10% of your estate to charity can cut how much is due for inheritance taxes on the rest of the estates. 

While the savings made from taxes may not be much, you definitely still get some cuts—and your favourite charities benefit from your decision too.

Remove Some Life Insurance

Removing life insurance policies won’t exactly reduce the inheritance tax amounts due on your estates, but the payout may be easier for your surviving family to pay the bill. Before doing this, be sure that the life insurance payout goes into a trust fund. Otherwise, it will make your estate bigger and require larger taxes, which would completely defeat the purpose.

Conclusion

Taxes are not exactly anyone’s favourite thing, but they are integral to the success of a country. When it comes to estate taxes, these can come out to a large amount that can make it difficult to handle if not prepared properly in advance. To ease the burden and pains of your surviving family, consult with an estate planning professional as soon as possible. 

Harry Robinson Wealth Management is a well known financial planning business in Cardiff who specialises in financial protection and insurance, pension planning, investment planning, estate planning, and more. Make sure your money is going in the right direction through consultations with our wealth management professionals for a brighter future. Get in touch with today to learn more.

References:

1. GOV.UK. https://www.gov.uk/inheritance-tax/gifts. Accessed on 7 August, 2020

*Will writing and Powers of Attorney involve the referral to a service that is separate and distinct to those offered by St. James's Place and along with Trusts are not regulated by the Financial Conduct Authority.