Inheritance tax: Britons urged to act as Christmas break a ‘good time’ to lower IHT bill

Inheritance tax explained by Interactive Investor expert

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Inheritance tax is chargeable at 40 percent on the value of an estate above a certain threshold when a person passes away. As the levy is not well-liked, many will be hopeful of avoiding it, and as such, they will need to consider the options available to them. With people across the country finishing their festive celebrations and relaxing on Boxing Day, individuals may wish to seize the day to transform their fortunes. 

Express.co.uk spoke exclusively to Elaine Roche, Board Member at Solicitors for the Elderly and Partner at Kuits, about the matter.

She stressed the importance of using this festive season for estate planning, as it could help Britons lower their inheritance tax bill in a number of ways.

Ms Roche said: “Christmas is a good time to be thinking about your estate and the way you can plan for when you’re no longer here.

“Of course, at this time, people are really thinking about gifting, as this is a time for giving and exchanging presents anyway.

“But then we also bring the matter of the pandemic into the equation, and many more people are considering what this means for them.

“A lot of individuals are thinking ‘let’s live for today, let’s do something and get organised’. Unfortunately, you never know when your time is up, and the last 18 months have really shown this.”

Gifting is considered to be an essential way of lowering one’s inheritance tax bill.

IHT may have to be paid after a person’s death on some gifts they have given, especially within seven years of the individual’s death.

However, gifting money, goods, property and shares is often seen as a good way to get money out of the estate and thus bring its value under the IHT threshold.

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For most people, Ms Roche highlighted, Christmas is a time when working responsibilities will usually slow down.

During the current period of Christmas and New Year, millions of people will be seeing their relatives, and this could present the perfect chance to discuss one’s estate and plans.

Alternatively, individuals can also use the downtime to think about the matter for themselves and lay out their plans.

There could, though, be another vital financial task which could trigger tackling one’s estate.

Ms Roche explained: “Those who are unfortunate enough to have to be dealing with a complex tax return for the January deadline could actually benefit.

“This is because considering a tax return might help them to tackle other aspects of their finances at the same time.

“It all ties in to one another, for example, if you’re doing your Income Tax return, you know how much income you have, and how much you’ve saved.

“As a result, it could be a natural time to start considering normal expenditure out of income reliefs which could significantly reduce your inheritance tax bill.

“That’s a great relief which is massively underused. It works so simply and yet you could get thousands of pounds out of your estate very quickly.

“For people with a more run-of-the-mill income, paying for grandchildren’s school fees or piano lessons, for example, helps everyone to benefit.”

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However, it is not only gifting to family which could help Britons with their inheritance tax bill, Ms Roche said.

Looking at charitable donations could be beneficial, as the Government explains “there’s no inheritance tax to pay on any gifts you give to charities”.

Ms Roche concluded: “Christmas is also a season which tugs on the heartstrings and there are a lot of deserving causes to support.

“Giving to charity could also help people with their inheritance tax bill, so this is worth looking at too.

“That can start people thinking about the best ways to not only help others, but also to reduce the tax bill on their estate.”

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