Six lesser-known ways to reduce Inheritance Tax you may not have considered, but really should

Inheritance Tax (IHT) is one of the most controversial taxes in the UK, so it’s little wonder that families are looking for ways to reduce the likely bill.

So, if you’ve used up your annual exemptions, made gifts to individuals, given money to the bride or groom, plan to outlive your lifetime gifts by seven years, what else can you do to reduce your estate’s liability to IHT?

 

Got some spare cash at the end of the month? Give it away!

To use this exemption, you need to start to make a series of regular gifts out of your after-tax income, and need to be able to demonstrate that after making these cash gifts, you still have enough left to maintain your usual standard of living. If you can meet these criteria, then there’s no upper limit, making this a generous exemption. We can advise you on putting the right paperwork in place to ensure that the payments will qualify.

 

Leave money to good causes

If you leave 10% of the taxable value of your estate to charity, you can reduce the IHT payable from 40% to 36%. With careful planning and the right clause in your Will, you can hit the ‘sweet spot’ that means not only does the charity benefit, your beneficiaries receive more than they would have done if the estate had been taxed at 40%.

 

Become a smart investor

If you want to invest in companies with growth potential and cut IHT, certain AIM-listed stocks are eligible for BPR which makes them exempt from IHT, as long as they are held for at least two years and at death. These stocks are eligible for inclusion in ISAs, meaning that they also provide a useful shelter from income tax and capital gains tax. As with any investment, there are risks, and getting independent financial advice from a qualified adviser makes good sense.

 

Make your money grow on trees

Woodlands are a special case in that they can qualify for APR and BPR, and if they don’t meet those criteria, there’s a special woodland IHT relief that can be applied. You must have owned the land concerned for at least five years if you bought it, but if you were given it or inherited it, there’s no minimum ownership period.

 

Serve your Queen and country

If a person’s death is due to active service in the armed forces, police force, fire brigade, ambulance service or in any ‘first response’ or emergency humanitarian aid project or was hastened by it, then their whole estate is exempt from IHT. This exemption was used by the executors of the fourth Duke of Westminster, who successfully claimed that his death from stomach cancer had been hastened by a stomach wound sustained in the Second World War.

 

Bequeath your Botticelli or your Bruegel to the nation

Some works of art and other objects can be exempt from IHT if they are classed as ‘heritage assets’ and given to a new owner, like a museum or art gallery, who undertakes to look after them, keep them in the UK and make them available to the general public to view. The same exemption can also apply to land or buildings.

Every family’s circumstances differ, so seeking professional guidance on inheritance tax matters is essential. If you’d like some practical advice, then do get in touch.

If you know of any other good reliefs to help migrate Inheritance Tax and would like to share them with others, then please do get in touch. We’d be happy to pass on interesting examples and good tips and develop an information-sharing network we can all participate in.