How you could slash inheritance tax bill by £70,000: Simple mistake may see you ‘lose out’

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Inheritance tax is one of Britain’s most hated taxes but shocking figures released this week indicate people are shelling out cash unnecessarily because they find conversations about death awkward. Carla Morris, financial planner at Brewin Dolphin spoke to Express.co.uk about how people can bring up the conversation and how they can pay less inheritance tax to HMRC.

When it comes to awkward conversations, death and money probably top the list, but a lack of communication could be costing Britons dearly.

That’s according to new figures released just this week which show that families are forking out cash unnecessarily, to the tune of a staggering £100,000.

Britons are spending more than £100,000 on court cases because people are failing to make their inheritance planning wishes clear while they are still alive.

Financial expert Carla Morris said: “If you or your family members are reluctant to touch the subject at all, it’s best to approach it in a transparent but compassionate way.”

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She continued: “Ensure all parties are clear on what their family’s wishes are in terms of the estate, as well as a broad understanding of what is most important to them and how everyone can be supported.

“Leaving this conversation until someone is ill or it’s too late can cause huge amounts of stress and will not allow you the clarity of foresight and expectation management for all involved”.

Having an up-to-date will is essential if people want to make sure their wishes are carried out correctly.

Britons who have already made a will might need to revisit it to benefit from the residence nil-rate band as this relief is only available if assets are left directly to descendants.

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The financial planner told Express.co.uk: “As a lot of older wills hold assets in trust, you could lose out if your will is not updated.

“As an example, the maximum available residence nil-rate band is £175,000 which if utilised in full it could reduce an IHT bill by £70,000.

Inheritance tax is charged at 40 percent on someone’s estate worth £325,000 or above when they die, however there are some additional things people can do to ensure their loved ones pay less.

This includes gifting while still alive to make the most of tax breaks.

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Brewin Dolphin recommends Britons consider the following ways to pay less inheritance tax:

• Each year people can give away £3,000 which will not be subject to IHT
• Britons can give £250 to any number of people each year (as long as they haven’t used another exemption on the same person)
• Parents can give £5,000 to each of their children as a wedding gift. Grandparents can give £2,500 and anyone else £1,000.
• If a gift is regular, comes out of your income and does not affect a person’s standard of living, any amount of money can be given away and ignored for IHT.

It is possible to make further tax-free gifts – potentially exempt transfers – but the individual will have to survive for seven years after making the gift.

It’s suggested Britons keep accurate records of the gifts they make to help those looking after their estate once they’ve passed.

If a married couple both used their £3,000 annual allowance every year for five years, they would have gifted £30,000 and saved £12,000 in IHT.

In addition, any gifts made to charity are exempt from IHT.

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