Death and taxes come to us all, although in the case of inheritance tax the two things can sometimes come at once if your estate is worth more than a certain amount when you die.

However, as Victoria Smyth, a private client law solicitor at WBW Solicitors in Chard explains, there are ways to reduce your inheritance tax bill and thus leave more of your assets to loved ones after you pass away.

Inheritance tax is a one-off tax which is normally payable after your death on any money, property, investments and possessions you own worth more than a £325,000 threshold.

Any assets you own worth less than £325,000 are not subject to inheritance tax (the nil-rate band). Inheritance tax is also not payable if you leave everything above the nil-rate band to your spouse, civil partner, a charity or a community amateur sports club.

If you give away your home to your children (including adopted, foster or stepchildren) or grandchildren your threshold can increase to £500,000, while if you are married or in a civil partnership and your estate is worth less than your threshold, any unused threshold can be added to your partner’s threshold when you die.

The standard inheritance tax rate is 40%, chargeable on the part of your estate that is above the nil-rate band. However, the estate can pay inheritance tax at a reduced rate of 36% on some assets if you leave 10% or more of the net value to charity in your will.

You can also reduce your inheritance tax bill while you are alive by giving away gifts. You are allowed to give away any of your possessions worth up to £325,000 during your lifetime without incurring inheritance tax.

Any gifts you give away over this threshold will only be subject to inheritance tax if you die within seven years of the gift being given, in which case, tax will be payable on a tapering basis, depending on when the gift was given before your death.

You also get what is known as an annual exemption, which allows you to give away assets or cash up to the value of £3,000 per year without incurring any inheritance tax. You can give gifts or money up to £3,000 to one person or split the £3,000 between a number of people. You can carry over any leftover allowance from one tax year to the next, up to a maximum of £6,000.

During your lifetime, you can give away any amount to a charitable cause inheritance tax-free, while you can also give away as many gifts of up to £250 per person as you like during the tax year as long as you have not used another exemption for that individual.

If you have surplus income, you can give this away tax-free too, although you must be able to maintain your usual standard of living after the gift is given and you will need to prove to HM Revenue & Customs that the payment forms part of a regular spending pattern – such as payments into a child’s savings account.

Finally, even if you have given someone a gift out of your annual exemption, you can still give the same person a gift for their wedding or civil ceremony worth up to £1,000 in the same tax year (£2,500 for a grandchild or great-grandchild, £5,000 for a child).

The rules surrounding inheritance tax gift exemptions can be complex and it is a good idea to seek legal advice before making any lifetime gifts. A specialist private client lawyer can advise you on how to make gifts most efficiently and ensure your beneficiaries are not left with a large tax bill after you pass away.

For more information on inheritance, or any other estate planning issue, contact Victoria Smyth at WBW Solicitors in Chard on 01460 269700 or email victoriasmyth@wbw.co.uk.

WBW Solicitors has offices in Axminster, Bovey Tracey, Brixham, Chard, Exeter, Exmouth, Honiton, Launceston, Newton Abbot, Paignton, Seaton, Sidmouth, and Torquay.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.