How to cut the inheritance tax on your family

The Prudent Investor analyzes the problems related to the inheritance tax

The Prudent Investor analyzes the problems related to the inheritance tax

The Prudent Investor analyzes the problems related to the inheritance tax

When I read the latest figures for the inheritance tax, the words of George Harrison echoed over the years: "Now my advice to those who die, declare the cents in your eyes."

Fifty-two years after writing Taxman for The Beatles, inheritance tax receipts have skyrocketed to £ 5.23 billion, rising 120 percent in eight years.

As the HMRC mowers make their way through more property, it is a reminder that we must invest efficiently in taxes for both life and death.

I have always used pensions and Isas for their tax benefits, and Mrs. H and I recently updated our testaments to make sure that everything we leave is handled efficiently.

IHT is a key consideration, because once it starts, a 40 percent punisher is charged. My philosophy is to spend as much as I can while I am fit enough to enjoy it and have the faculties to remember it.

I told my wonderful mother-in-law that, later in life, every £ 1 spent really only costs 60 pence; the other 40 pence is really in relief with the IHT.

So if she spends £ 6 to buy me coffee and cake, it's actually costing her £ 3.60 with the other £ 2.40 IHT avoided.

If, on the other hand, I collect the account, that £ 6 comes out of my taxed income so, as a higher rate taxpayer, I would have to earn £ 10 to pay it. I'm not sure that she is completely convinced.

How much can you leave tax free

The biggest problem with the inheritance tax is that the basic starting point of £ 325,000 has not changed since 2009. If it had increased with price inflation it would be £ 422,000, or if it had increased with housing prices, more about £ 550,000.

Those who can leave money to direct descendants as children and grandchildren, whether their own, adopted or adopted, can leave an extra £ 125,000 of the value of their principal residence tax-free. This allocation will increase to £ 175,000 as of April 6, 2020.

The spouses can combine their allowances, which will effectively give a limit of £ 1 million, although the additional allocation begins to be reduced on farms of more than £ 2 million.

I have friends without children who are angry and, justifiably, feel that they are being punished in a strange way. Nieces, nephews and godchildren do not qualify for this bonus.

The Tax Simplification Office is studying how the tax could be changed. But, with the government desperate to raise cash, do not hold your breath.

Tony Hazell says that the biggest problem with the inheritance tax is that the basic starting point of £ 325,000 has not changed since 2009. If it had increased with price inflation it would be £ 422,000, or if it had gone up with the prices of housing, closer to £ 550,000

Tony Hazell says that the biggest problem with the inheritance tax is that the basic starting point of £ 325,000 has not changed since 2009. If it had increased with price inflation it would be £ 422,000, or if it had gone up with the prices of housing, closer to £ 550,000

Tony Hazell says that the biggest problem with the inheritance tax is that the basic starting point of £ 325,000 has not changed since 2009. If it had increased with price inflation it would be £ 422,000, or if it had gone up with the prices of housing, closer to £ 550,000

How to beat the inheritance tax trap

For now, the best thing ordinary people can do is give away everything we can without leaving us short.

As long as you live seven years after making a gift, you will be out of the IHT network. It is a great incentive for his children to indulge him for the better part of a decade.

You can also make regular gifts with income if they do not reduce your standard of living.

Therefore, you can make a regular monthly contribution to the costs of pension, mortgage or education for your children or grandchildren, knowing that your money is helping to build your future.

Pensions are a precious option because they are not part of your assets, so they do not count towards your IHT allocation.

If you die before you turn 75, beneficiaries can spend the entire lot without paying taxes and take it within two years.

If you die later, the money still goes free of taxes, but the beneficiary will be taxed at its highest rate of income tax when you withdraw the money. If you take a lump sum tax-free, that money immediately becomes part of your estate.

Isas, on the other hand, are in your estate, so the money left in them will count towards your IHT allowance, although Isas can be inherited by a spouse with intact tax benefits. So, it may be better to take income from Isas initially.

Remember that all the money that is transferred to your spouse or civil partner runs out of IHT. If you are making a gift to the children, it might be better for the youngest child or the one with the best health to do it. In other words, the one that you think is more likely to survive long enough to escape from IHT.

Mrs. H and I have wanted our money to each other instead of wasting money making other gifts.

The survivor can make gifts and try to endure for seven years. They will also have our combined IHT assignments for anything that they have been foolish enough not to spend.

The exemptions remain frozen and withered. The best is probably the £ 5,000 that we can give our children when they get married; Grandchildren can get £ 2,500.

There is also an annual allowance of £ 3,000 and a small allowance of gifts, under which you can give £ 250 to any number of people, some wine boxes for close friends, perhaps?

Life insurance products, if properly structured, will pay without IHT in case of death. That is useful when you are young and you raise a family, but for the elderly they are expensive; I would not touch them with a bargepole.

Let's not forget it's our money. Tax planning is fine, but if you can not spend your savings when you need them, you have been sold a puppy.

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