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What is Inheritance Tax? 

Inheritance tax is a state tax charged on assets inherited from a deceased person. Inheritance tax is paid by the person who inherits the assets, and rates vary depending on the size of the inheritance and the inheritor’s relationship to the deceased.

In this article, we will discuss the top 6 practical ways how you can avoid inheritance tax. Before we dive into the discussion, we also explained the best way how to avoid inheritance tax UK in one of our YouTube videos below. Watch this video to understand inheritance tax and how to avoid it most efficiently, as explained by the industry’s expert. Hit the subscribe button for new content and tips about the UK pension transfer industry.

Inheritance Tax Threshold 

Inheritance tax is a 40% tax levied on estates worth more than £325,000—or more if a home or the sale proceeds of a home are included. The first £325,000 ($420,575) of each estate is exempt as part of the “nil rate band” and it is transferable between partners if it goes unused, meaning a married couple could pass on 650,000 pounds without paying tax.

Furthermore, additional exemptions for the passing down of family homes were introduced in 2017, so that those who inherit a family property are less likely to be forced to sell the asset in order to pay the tax. For the 2019-2020 tax year, an additional allowance of £150,000 has been added, giving married couples a total exemption of up to £800,000.

How To Avoid Inheritance Tax? 

As one might expect, most people are unwilling to pay estate taxes because the property was acquired by the person they love. As a result, there are a variety of strategies you can employ to reduce or even avoid estate tax. The following strategies will help you save money on inheritance tax.

1. Talk to An Independent Financial Adviser

If you are unsure about how to manage your money, invest for the future, or care for your family, a financial adviser is worth the investment. Expert financial advice may be required at various stages of your life, such as when you have a child, get a promotion, or inherit money. A financial adviser can help you choose the best option for your needs and help you manage your income to avoid unnecessary tax bills and running out of money.

2. Give Your Assets to a Family Member

One way to avoid estate tax is to give portions of your wealth to family members as gifts. For 2022, you can give anyone up to $16,000 tax-free, or up to $32,000 if you’re married and file jointly. You can give up to $12.06 million of your wealth as gifts during your lifetime before being hit with the gift tax.

There is no limit to how many people you can give gifts to in a calendar year. So, if you have an estate worth $18 million, you can steadily transfer assets to loved ones until the net value of your estate is less than $12.06 million. Keep in mind that this threshold applies to both the gift tax and the estate tax.

3. Set Up A Trust 

Pensions and life insurance policies can help you reduce your tax bill. The policies may need to be written “in trust” with either of these. This typically means that any payouts will not be included in your estate, but will instead be distributed to your beneficiaries without being subject to inheritance tax.

If you place assets in a trust, they will not be included in your estate when you die, thereby avoiding inheritance tax. You could, for example, place assets in a trust for the benefit of your children when they reach the age of 18.

4. Make a Donation at Your Will

Another way to avoid estate tax is to use a trust to transfer some of your wealth to a charity. Charitable trusts are classified into two types: charitable lead trusts and charitable remainder trusts.

If you have a charitable trust, some of your trust’s assets will be donated to a tax-exempt charity. Donating to charity reduces the value of your estate and provides an additional tax break. Whatever remains in the trust after your death will be distributed to your beneficiaries.

You can transfer stock or another appreciating asset to an irrevocable trust if you have a charitable trust. You can profit from that asset throughout your life. When you die, your investment income will be donated to charity. You’ll avoid capital gains tax and reduce your estate tax burden in the process. 

5. Establish a Family Business

If you want your children to inherit any family-owned businesses or assets, such as real estate, you can set up a family-limited partnership. In most cases, this entails forming a general partnership and then making heirs and family members limited partners.

You’ll still be able to make decisions as the general partner. Your partners, on the other hand, will own a stake in your company or a portion of your assets. As a result, your estate will be smaller in size.

6. Leave Your Property to Your Children

The government introduced an additional tax allowance on top of the nil rate band in April 2017. This provides homeowners with an additional £175,000 tax allowance if they leave their home to their children, stepchildren, grandchildren, spouses, or civil partners.

It’s important to understand this extra tax allowance before writing a will, just like the nil rate band, because it may influence who you leave your estate to. This allowance is also transferable between married partners and couples in civil partnerships, which can increase the surviving partner’s tax allowance.

Cameron James, Expat Financial Planning – Your Trustworthy Pension Transfer Specialist

Cameron James Expat Financial Planning is the preferred independent financial adviser for Final Salary pensions, QROPS, and SIPP transfers. With over ten years’ experience in pension transfers, Cameron James is now servicing clients in 26 countries. 

Our mission is to bring regulated and transparent advice to our clients. As such, our clients know how much their advice will cost in advance, with no hidden fees.

Cameron James Expat Financial Planning has a sophisticated cash flow management system in place. Our senior management team has a decade of experience in serving expats and is committed to serving the requirements of expats for decades to come.


Dominic James Murray

My career in financial services began in 2010 during my Bachelor of Science (BSc) Undergraduate degree at Aston University in England. The degree required me to spend a year abroad working with an established organisation.

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