Inheritance tax is on course to hit another record high this year as experts predict HMRC receipts could be 13.7 percent higher than in 2021 to 2022. Inheritance tax is charged at 40 percent on anything above the £325,000 threshold unless they leave everything over £325,000 to a spouse, civil partner, or charity. The threshold is unlikely to change in the budget. However, the older generation could pass on wealth tax-free by making the most of gifting allowances before the end of the financial year.
Anthony Whatling, tax partner at Evelyn Partners said now is the time to review personal finances as some crucial allowances could be cut from April 2023.
He said: “It’s one of the most decisive tax-year ends in decades. So if not done already then it’s definitely time for earners, savers and investors to review their tax position.
“Many allowances are calculated on a yearly basis, so a pre year-end review can help to identify any potential tax savings, particularly with the changes afoot.”
One way to make the most of tax breaks is to use up the annual gift allowance when it comes to inheritance tax.
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He said: “Passing down a living inheritance is the most popular route and could be done via equity release, gifting, creating a trust, or via political or charitable donations.”
During 2021 to 2022, a staggering £6billion was paid in inheritance tax to HMRC, the largest amount since 1999.
Whereas inheritance tax was initially supposed to tax the wealthy, hardworking families often bear the brunt due to high property prices and frozen IHT allowances.
Richer Britons may be more likely to speak to advisors on the issue, who are well versed when it comes to legal loopholes which would enable them to pay less inheritance tax.
10 legal ways to pay less inheritance tax:
- Consider putting the property into trust
- Be aware of Business Owner Exemptions
- Donate a part of it (above the threshold) to charity
- Gift up to £3,000 to family members and friends tax free
- Give away assets seven years before one dies.
- Make the most of wedding gift allowances (up to £5k)
- Buy a funeral plan
- Spend it
- Be mindful of inheritance tax thresholds
- Speak to an independent financial adviser.