Money Blog: Bank fined £29m over ‘appallingly lax’ checks; Various ways to avoid inheritance tax | money | British News

Rachel Reeves will unveil her first major budget as chancellor in just over four weeks – and she has suggested it could include a painful mix of spending cuts, tax rises and increased borrowing.

Although nothing is confirmed, there is speculation that Labor may target inheritance tax to address shortfalls in Britain’s finances.

Official government figures show that inheritance tax receipts for April to August reached £3.5 billion – around £300 million more than the same period last year.

Inheritance tax is a tax on a deceased person’s estate – including all property, possessions and funds – and is only levied above the tax-free threshold of £325,000.

This threshold was frozen by the Chancellor until 2028.

So as inflation increases the value of people’s property, more and more people are pulled over the threshold.

The standard inheritance tax rate is 40%.

Financial experts at Arbuthnot Latham said that while the rise in government tax revenue was partly due to frozen thresholds, they showed that “many families are not planning for inheritance tax”.

So what can be done to ensure families can keep their assets?

According to Arbuthnot Latham, it is important for families to have a “tax-efficient plan” that ensures their loved ones “receive a greater transfer of wealth.”

It says it’s “crucial” to figure out how your assets and income can support your lifestyle – but also points out that “spending and enjoying your assets” – that is, leaving less when you die – is the key “The easiest way is to reduce your assets”. Inheritance tax burden”.

A lifelong gift

Gifting money or assets to loved ones before your death can help you avoid inheritance tax, but there are limits to how much you can give away and to whom.

You are currently allowed an annual gift allowance of £3,000, gifts of up to £5,000 from a parent from a marriage or civil partnership, and regular gifts from excess income.

You can also make as many gifts as you like each tax year, worth up to £250 per person, as long as you have not already used another allowance for the same person.

Trust

These are a “powerful tool” for giving gifts to families, says Arbuthnot Latham.

Trusts allow you to give away money while maintaining control of it by appointing yourself as trustee and writing a letter stating your wishes.

Some trusts offer ways to reduce the taxes your loved ones pay when they receive an inheritance.

Pensions

The pension pot is not subject to inheritance tax in the event of death and is an efficient investment instrument.

However, there are “many elements to consider, from risk tolerance to when and how you may want to access your pension,” says Arbuthnot Latham.

If you took cash out of your pension pot as part of an income withdrawal and that money is in your bank when you die, it could be taxable.

Protection

“Protection coverage can provide liquidity to cover some or all of inheritance tax or other costs associated with death,” says Arbuthnot Latham.

Relief for companies

One way to avoid inheritance tax is to invest in companies that are eligible for business relief, provided the shares have been owned for at least two years at the time of death.

This is comparable to giving away money that would only be tax-free after seven years.

The relief applies to assets that meet certain conditions – although companies eligible for the relief tend to be smaller and riskier, meaning there is a degree of uncertainty.

Spousal Exemption

If you leave your entire estate to your spouse or civil partner, there is no inheritance tax – even if the value exceeds £325,000.