How to Avoid Inheritance Tax Traps

At the point of inheritance, most people prefer that their wealth is passed on to family or other loved ones. Gifting assets to the next generation have its challenges and without forward planning, much of your hard-earned wealth could end up in the hands of the taxman. The good news is that there are numerous things you can do to decrease the potential inheritance tax bill, and here at Hysons, Chartered Accountants we are here to assist you.

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Gifting of Assets

Gift assets during your lifetime to reduce the size of your estate. You can transfer the ownership of assets to your heirs, and those assets will no longer be subject to inheritance tax, as long as the benefactor survives for another seven years. Do keep in mind that there are some tax implications to gifting assets and that gifts remain ‘potentially exempt transfers’, subject to conditions and certain exceptions until the benefactor has surpassed 7 years before dying.

Gift Tax Exclusions

Take advantage of the annual gift tax exclusion. This is an allowance whereby tax need not be paid on contributions gifted to another person each year; the amount for 2023 is £3000 per person making a gift. As such, you are free to make as many gifts as possible totalling up to £3000 without incurring any gift tax obligations. By making regular contributions during your lifetime, you will reduce the size of your estate and, in turn, the amount of inheritance tax [] your heirs will be required to pay, should the remainder of the assets be passed onto them too.

Assets in Trust

A trust is a legal structure in which assets are transferred to a trustee who manages them for the benefit of the trust’s beneficiaries. You can limit the size of your estate and your estate tax liability by forming a trust. Trusts are classified into four main types: life interest trust, discretionary trust, accumulation and maintenance trust and bare trusts. Each type of trust has advantages and disadvantages; it is critical to speak with a tax specialist to establish which type of trust is be suited to your circumstances. At Hysons, Chartered Accountants, we can help advise, identify appropriate trustees and prepare the necessary documentation.

Consider Life Insurance

Life insurance can be another effective way to transfer wealth to your heirs without incurring inheritance tax. By naming your heirs as the beneficiaries of your life insurance policy, the proceeds of the policy will pass to them tax-free. In cases where this pushes your assets over the £325,000 threshold, you may need to also set up a trust. This can provide your heirs with the funds they need to pay for estate taxes and other expenses without depleting their inheritance.

Plan with Hysons, Chartered Accountants

There are several strategies that can be employed to maximise the amount passed on to your future generations; and one of these is to plan ahead. By working with Hysons, Chartered Accountants, we can help you create a comprehensive estate plan that takes advantage of all available tax breaks and minimises your estate tax liability. This takes all the guesswork away from you and enables you to concentrate on protecting your assets.

An estate plan can also help ensure that your assets are distributed according to your wishes and that your heirs are provided for after your death.

Contacting us is easy and our friendly team is ready to help manage your inheritance in the way you wish.


Inheritance Tax Advice and FAQs

Getting your personal finances in order for when you pass away can be stressful, especially when coupled with funeral planning and other end of life care arrangements. Hysons can relieve this pressure with our range of inheritance tax planning services.

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What are the Different Types of Trusts?

Nobody’s financial situation is the same and everyone prefers to manage their assets differently. As a result, there are several types of trusts to store your wealth in, each of which cater to specific financial needs. Learn about the main types of trust

Learn more → about What are the Different Types of Trusts?