How to Make the Most of the New Inheritance Tax Rules

While there is no single tax that anybody actually wants to pay, there are some that prompt a more emotive reaction than others.

Take inheritance tax, for example, which often arouses strong emotions among citizens despite the fact that it is applied to fewer than one in 25 deaths. It remains an emotive and controversial tax due  to the fact that it raises an estimated £4.8 billion a year from members of society, while it can be argued that the practice essentially taxes individuals twice on the same earnings.

Last April, saw the introduction of new rules that have changed the landscape, however, and in this article we will look at the best ways to capitalise on these in the future. 

What Are the Rule Changes and What Do They Mean?

 Given that inheritance tax is the only measure of its type that the majority of the population believe should be abolished, it makes sense that the government should have taken direct action to reform the legislation. Under the new rules that were initially proposed by former Prime Minister David Cameron, you will now be able to pass on more of your estate free of inheritance tax, so long as the beneficiaries are direct descendants of your bloodline.

Historically, the threshold at which your estate became liable for inheritance tax at 40% was 325,000, but under the new proposals launched this year you will now be entitled to an additional 100,000 tax-free ‘family home allowance’ that can be levied against the value of your property. The only provision is that you must leave this property to your children or grandchildren to qualify for the allowance, otherwise you may be forced to pay inheritance tax at the standard rate.

Interestingly, the threshold associated with this allowance will also rise further in the future, to £125,000 in the 2018/19 tax year, £150,000 in 2019/20 and £175,000 in 2020/21.

The Last Word: How to Capitalise on These Rule Changes

This is a measure that will immediately help citizens to retain more of their estate and increase the value of cash and property that they are able to leave to descendants in the future. It will also help to maximise the impact of any proactive steps that you take to keep your potential inheritance tax bills to a minimum, so now is the ideal time to invest in financial planning and seek out expert guidance from service providers such as Tilney.

One of the first steps that you can take is to give away £3,000 from your estate every year, as this is the threshold at which you can distribute funds without becoming eligible to pay inheritance tax. Similarly, you can also make any number of small, individual gifts up to the value of £250 in any given tax year, once again without being required to pay inheritance tax. These steps will enable you to make small but incremental savings, which can help to optimise the amount that you ultimately leave to your loved ones.

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