Inheritance tax is charged at 40% on your estate if you leave more than £325,000 as a single person or £650,000 as a surviving spouse or civil partner.
You can, however, reduce your liability to inheritance tax by making the most of the lifetime tax free allowances:-
- gifts up to the value of £3,000 per year in total (if you make no gifts in the previous year, you can increase the £3,000 to £6,000); and
- gifts of £250 cash per annum to any number of different individuals; and
- gifts of your surplus income year on year (you need to keep a record of your income and outgoings to support this); and
- gifts of unlimited value to another person provided you survive for 7 years from the date of the gift. These are known as Potentially Exempt Transfers or PETs.
There are a number of additional methods of giving to reduce inheritance tax, including gifts to charities.
For those fortunate to have more wealth than they need to live on, lifetime gifts can form a key part of any inheritance tax planning and should be used as part of long term estate planning.