Inheritance tax (IHT) is paid on property, money and savings which can prove costly for grandparents passing on wealth to loved ones. IHT receipts generated a record £6.4billion for HMRC in the 2022/23 tax year.
The inheritance tax nil rate band is remaining frozen at £325,000 since inception in 2008, meaning more and more people are being pulled into the IHT net.
The introduction of the residence nil rate band in 2017 softened the blows somewhat as it potentially allows the main family residence to pass free of IHT up to £1million but many people are still considering their options when it comes to reducing their potential tax bill.
With more and more people are being pulled into the IHT net, an expert has exclusively shared how older Britons can slash their bills, whilst helping their family out.
Brian Byrnes, head of personal finance at Moneybox told Express.co.uk: “It is imperative that the primary focus is on making sure retirees have enough to live on before reducing a potential IHT bill is considered.
“One implication is running out of money and draining your account in your 80s and 90s because you generously gifted away assets earlier in life is not an outcome any of us would wish for.
“Once this is definitely covered, then there are steps that can be taken to reduce an IHT bill with careful planning and advice.
“One step for grandparents to reduce a potential inheritance tax bill is by gifting up to £3,000 a year to their children or grandchildren.
“This can be used to fill ISAs, Junior ISAs, or even Junior pensions where grandchildren can still benefit from tax relief!
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“There are also further gifting allowances around weddings for both children and grandchildren which are worth investigating.”
Around 35 percent of retirees have given money to their family or friends since the beginning of the year according to LV’s wealth and wellbeing monitor.
On average, those helping their grandchildren gave £15,000 while the average amount given by all adults was £8,400.
If the couple didn’t use their annual exempt amount to gift money last year, they can roll it over to this year taking their allowance up to £6,000 – or £12,000 between them if their spouse or partner is in the same position.
However it should be noted that any unused annual exemption can only be carried forward to the next tax year. After that it expires.
If someone is giving gifts to the same person, they can combine the annual exempt amount with the wedding gift allowance so they could give their child a wedding gift of £5,000 as well as £3,000 using their annual exemption in the same tax year, he explained.
Normally, if someone were to make an outright gift, it would be treated as a “potentially exempt transfer”.
This is for the purposes of IHT. This would pass outside of your estate if you survive for seven years.
If someone dies within seven years and the total value of gifts they made is less than the IHT threshold (currently £325,000), then the value of the gifts is added to their estate and any tax due is paid out of the estate.
However, if someone dies within seven years of making a gift and the gift is valued at more than the IHT threshold, IHT will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.
If they die between three and seven years after making a gift, and the total value of gifts that they made is over the threshold, any IHT due on the gift is reduced on a sliding scale.
This is known as ‘Taper Relief’.
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