5 Ways to Reduce Inheritance Tax

A recent study has found that the UK and Ireland have the highest inheritance tax rates in the developed world.

In the UK if you're estate exceeds the threshold £325,000 then 40% inheritance tax will be charged on anything above that value. Meaning an £1.8m estate would see 32.9% taken away for tax, compared to the European average of 14% this is considerably higher.

Rising house prices mean more and more people will be liable to pay inheritance tax over the coming years.

However there are some ways to significantly reduce the level of inheritance tax your estate is liable for.


1. A gift to your partner
As long as you are both permanent UK residents, then you can make tax-free gifts to your spouse or civil partner. When you pass away anything you give to them will not be counted as part of your estate.


2. Give to family and friends
If you give something to a friend or family member, the value of the gift will only be liable for inheritance tax for seven years. For example, if you give a family member a sum of money and live for another seven years then inheritance tax will not have to be paid on the value of the gift.


3. Invest in a trust
If you invest cash or property into a trust which neither you, your spouse or children under 18 benefit from then they are no considered to be part of your estate therefore no longer liable for inheritance tax. For example, you set up a trust to pay for your grandchild's education the value will not be eligible for inheritance tax.


4. Give something to charity
Inheritance tax will not be charged on anything you leave to charity, so you can reduce your inheritance tax bill and donate to a good cause at the same time. Also if at least 10% of your estate is left to charity, only 36% of your estate over £325,000 is liable for inheritance tax rather than 40%.


5. Life insurance
Although taking out life insurance will not reduce the amount of inheritance tax your estate is liable for, the payout may make paying the bill much more manageable for your family members. For example, having this extra cash available when you pass away could save your family from being forced to sell the family home to afford the tax on your estate.



Many of these ways to cut inheritance tax can not be achieved without a Will. Therefore it is important that you have one in place to ensure you can provide as much as possible for your friends and family should you pass away. If you have not made a Will, ConsumerCare can help you by providing a professional Will at a fraction of the price that the average solicitor would charge.