Inheritance tax threshold ‘no longer fit for purpose!’ How you can legally cut IHT bill

Inheritance tax: Financial advisor provides advice

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More families are being dragged into the IHT net each year as the threshold for paying the tax has not increased from £325,000 since April 2009. However, Britons can act now to make sure they pay as little inheritance tax as possible to HMRC.

Campaigners against the tax say inheritance tax thresholds have remained the same since 2009 – despite the fact that house prices have risen significantly.

Gill Millen, managing director of Bowmore Financial Planning, said: “Over the past 13 years, IHT has become a significant income stream for HMRC.

“What was intended to be a tax only on the truly wealthy has become a general tax on ‘Middle England’ and the next generation.”

She continued: “13 years ago £325,000 was a reasonable threshold for IHT.

“That threshold is no longer fit for purpose and the problem is only getting worse as house prices continue to rise.”

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Ms Millen thinks the Government should look at increasing the threshold in line with inflation “to make sure that normal, middle class families are able to pass on wealth without being taxed unnecessarily”.

Inheritance tax (IHT) of 40 percent is usually paid when a person’s estate is worth over £325,000.

A residence nil-rate band was introduced in 2017 which allows a further £175,000, providing residential property is left to direct descendants.

However, the number of properties selling for more than £500,000 is increasing every year.

These properties accounted for almost a fifth (17 percent) of all sales in England and Wales in 2021, compared to 11 percent just two years earlier.

There are some tools and calculators on the Gov.uk website to help people work out their tax and potentially end up paying less.

It could also pay to speak to a financial advisor who could save people money by helping them make use of all the legal loopholes.

Typically, there are 10 inheritance tax loopholes Britons need to be aware of before doing their tax accounts.

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10 Inheritance tax loopholes

  • Talk to parents or grandparents about putting the property into trust
  • Make sure they know about Business Owner Exemptions
  • Donate a part of it (above the threshold) to charity
  • Gift up to £3,000 to family members and friends tax free
  • Give away assets seven years before they die? Encourage them to spend it well before they die
  • Make the most of wedding gift allowances (up to £5,000)
  • Buy a funeral plan
  • Spend it
  • Be mindful of inheritance tax thresholds
  • Speak to an independent financial adviser.

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