How Can I Reduce My Inheritance Tax Bill?

There are certain things which are not subject to inheritance tax, estates worth under £325,000 do not need to pay inheritance tax and gifts between a husband and wife (if both partners are in the United Kingdom) are always tax free. However, if your estate is worth over £325,000 you may be concerned about inheritance tax.

Inheritance is currently set at 40%. There are two common moves to reduce tax. One is to leave 10% of your estate to charity. The other is to use a deceased partner's unused nil-rate band.

Leaving Money To Charity

If you leave 10% of your estate to a charitable organisation your inheritance tax bill will be reduced to 36%. There are certain charitable organisations which are recognised by Her Majesty's Revenue and Customs (HMRC). These are:

- Organisations which are recognised as a charity for tax purposes

- Community Amateur Sports Clubs (CASC)

The charity you are donating to must have a HMRC charity reference number for it to qualify as a charitable cause for the purposes of inheritance tax. You must check this with the charity directly if you are unsure.

Transferring A Nil-Rate Band

Since the autumn of 2007 you have been able to transfer a nil-rate band from your spouse or civil partner. This can increase the second partner's inheritance tax threshold up to 100%. After a nil-rate band transfer your inheritance tax threshold can be raised from £325,000 up to £650,000 in total. (Figures correct for 2012/2013). The nil-rate band remains unused if a married partner dies and leaves their entire estate to their spouse. This is because an gifts to a spouse are exempt from tax. A nil-rate band can then be transferred across on the death of the second partner. To transfer a nil-rate band the executor of the deceased's Will must complete the relevant form for HMRC. The second death must have occurred after the 7th October 2007. In most circumstances the nil-rate band will be able to be transferred, however if the first spouse passed away before 1975 a limited transfer may only occur due to differences in tax laws prior to 1975. There are very few circumstances in which a transfer is not possible at all, but it should be noted there are some.

Contact a specialist inheritance tax solicitor today to talk over your Will and ensure that you have everything in place that you can to reduce your tax bill. Inheritance tax planning is essential. You may have other options you can explore beyond the two discussed in this article.

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