As many people get on top of their finances in January, people are being reminded that there are legal ways to reduce how much inheritance tax they
As many people get on top of their finances in January, people are being reminded that there are legal ways to reduce how much inheritance tax they need to pay to HMRC in 2022. Britons are throwing away millions of pounds every year in inheritance tax which could be avoided if they brush up on the rules.
Inheritance tax is a tax paid on the property, money and possessions of someone who’s died.
People will need to pay 40 percent to HMRC on assets if they are above the threshold – which is usually £325,000 if the assets have not been left to a spouse, civil partner or charity.
It can be an expensive mistake – in 2020, the nation gave away £125million in unnecessary inheritance tax (IHT) through “gifts gone wrong”.
That works out at a quarter of a million pounds each which could be legally avoided with the right advice.
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Five ways to legally avoid paying inheritance tax:
- Give away £3,000 away each tax year inheritance tax-free. This allowance can be carried forward for one tax year.
- Gifts to charities and political parties are tax-free when it comes to inheritance tax.
- £250 per person can be gifted each tax year are excluded from inheritance tax and are not counted towards the £3,000 annual gift exemption.
- Consider giving away money from income rather than assets if affordable.
- Wedding gifts are tax-free up to a limit of £5,000 for a gift from a parent, £2,500 from a grandparent and £1,000 from anyone else.
A rule change has also been announced which should make life easier for thousands of people.
Anyone who receives their inheritance on or after January 1, 2022 will no longer need to report the value of the estate they have inherited unless they are applying for a probate.
A probate is the legal right someone has to manage and control the assets of someone who has passed away.
However, if the estate owner died prior to or on December 31, 2021, the rule change will not be valid.