In this article
When you pass away, you will no doubt want certainty that the entirety of your estate goes to your loved ones, with inheritance tax loopholes proving highly useful in securing this. Current laws state that any estate below the individual inheritance tax threshold of £325,000 is exempt from tax. However, 40% tax is applicable to any money above the threshold. This means that you could lose a large portion of your hard-earned assets.
In order to assist in reducing the percentage of your assets that the taxman will acquire upon your passing, this article will cover inheritance tax loopholes for 2022 and 2023 that you may find useful.
With highly complex rules surrounding inheritance tax, it can often seem like an uphill struggle to ensure that you are in control of your estate. Implementing these 8 inheritance tax loopholes grants you peace of mind that those held dearest to you will be looked after upon your passing.
Although we refer to them as loopholes, the correct names for the items covered in this article are reliefs and exemptions. However, for ease of understanding, we will refer to them here as inheritance tax loopholes.
Annual gift exemption.
In England and Wales, you are able to give away gifts worth up to £3,000 tax-free, which could be the perfect loophole in inheritance tax laws to ensure that your beneficiaries receive a larger portion of your estate. You are also able to carry this price cap over to the following tax year, but only for one year.
This could therefore present the option to start offsetting your assets to loved ones prior to your passing, meaning that less of your estate will be taxable.
If your estate only marginally exceeds the inheritance tax threshold, you can repeatedly use your annual gift exemption over the years to reduce the overall size of your estate. This is a simple way to reduce inheritance tax liabilities that requires little to no planning.
Place assets within a trust.
Another commonly used inheritance tax loophole is placing your assets within a trust. Your estate will not include these assets and therefore they avoid inheritance tax. Trusts are a great way to leave behind part of your estate to somebody who is too young to handle their affairs. An ‘interest in possession’ trust is a further option that allows for you to take income from the assets whilst avoiding inheritance tax.
It’s important you take advice if considering creating a trust as they can actually increase your tax liabilities if set up incorrectly.
Any income gained from assets within an ‘interest in possession’ trust is liable to income tax.
While we make every effort to ensure the information in our articles is correct at the time of writing, the law can quickly change. These inheritance tax loopholes may not be valid when it comes to planning your estate.
Britton and Time Limited are a law firm and regulated by the Solicitors Regulation Authority with registration number 644762. We are not regulated by the Financial Conduct Authority (FCA).
If financial advice is required, we will always direct you to an organisation approved by the FCA.