Inheritance tax is a touchy subject. No one wants to see their hard earned cash in the hands of the taxman, but inertia will end up costing 40% of your estate should you fail to act now.
Every aspect of your estate is subject to inheritance tax, this includes property and possessions, and often leaves your beneficiaries forced to sell parts of your estate in order to meet these taxes. However, with consideration this bill can be drastically reduced and you can live to see you children or grandchildren benefit from their inheritance.
The solution is to gift the money while you are still alive. This makes sense on a number of levels, however there are of course important aspects to consider beforehand. As the population lives longer, we see the average person born in the 1980’s being 64 years old before they see a single penny of inheritance. By then it is often too late for this money to be of any real life changing value. However, should you decide to gift your beneficiaries earlier on in life, this can help your children and grandchildren get on the property ladder or educate their children.
In fact an inheritance tax exemption opens the way for Grandparents to pay all or part of their grandchildren’s education without those funds being subject to inheritance tax. Outside of this, should you gift money to beneficiaries, they won’t be subject to any tax on this amount as long as you live for another seven years following the transfer of funds.
Of course it’s important that you think about how much you will need to survive your remaining years, including covering the cost of any long term care you might require before you start giving away a penny. A financial adviser can assist you with this if you are in any doubt. There is also the option to give away £3,000 a year and have this sum excluded from any future inheritance tax bill. You may want to consider putting this amount towards a Junior ISA or a lifetime ISA to help your children with a home deposit.
Peter Field is a financial analyst and has written for InvestingReviews.co.uk covering topics from pensions, savings, investments and ISAs. His knowledge of the Investment market has proven invaluable, making his unbiased views and opinions open and honest for everyone. In 2021 Peter retired and is working towards enjoying more of the outdoors with his beloved labrador Millie.