Making a will is a crucial part of smoothing the process of transferring assets to loved ones after someone dies. It simplifies the process of dispersing an estate and could be used to help reduce inheritance liability.
"Inheritance planning is crucial in the run up to retirement. The inheritance tax threshold has been frozen at ВЈ325,000 until 2015, meaning that many people will potentially face a tax bill if they do not plan ahead," notes Matthew Stephens, inheritance tax expert at Prudential.
For example, by making a will that leaves ten per cent of a person's assets to charity, they can knock ten per cent off their inheritance tax bill of the entire estate. But there are several other ways to avoid inheritance tax.
Getting married is one of the best ways to reduce the bill. "Transfers to a spouse or civil partner fall outside of the inheritance tax net," says John Whiting of the Chartered Institute of Taxation (CIOT). Speaking to the Mail on Sunday. he explained how people can leave assets to a spouse or civil partner to limit their overall inheritance
liability. Basically, leaving assets to a spouse means that they can then double their inheritance tax free limit from ВЈ325,000 to ВЈ650,000.
Mr Whiting also suggests that it also pays to use cash and assets rather than give it all away. "A good tip is to spend some of it," he said. "But don't leave yourself destitute."
Other ways to reduce the bill include making gifts from an income, rather than capital, and giving gifts to people getting married, both of which are inheritance tax exempt.
MoneySavingExpert.com contains similar advice to people looking to reduce their inheritance tax bill. The website also advises people to make a will .
"This is actually a really sensible step for anyone thinking about the perils of inheritance tax, and what happens to your money once you've gone," the site explains, before adding that "there are many off the shelf will packages" to choose from.
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Published on: March 14, 2012