Syllabus A3. Inheritance Tax A3f. IHT planning

A3fi. IHT planning

Syllabus A3fi)

Advise on the use of reliefs and exemptions to minimise inheritance tax liabilities, as mentioned in the sections above.

How to pay as little IHT as possible?

IHT planning

The overall objective is to ensure that the HMRC get as little as possible and the next generations get as much as possible.

The total inheritance payable can be reduced if a person makes lifetime gifts rather than death gifts. 

Lifetime exemptions can apply to reduce the total inheritance tax payable.

  • Make lifetime gifts each year sufficient to use the Annual Exemption – £3,000.

  • Make as many small gifts of £250 per donee per tax year.

  • On the marriage of a son, daughter, grandchild, nephew and niece make gifts covered by the marriage exemption. 

    From a parent £5,000 
    From a grandparent £2,500 
    From any other person £1,000

  • Make lifetime gifts of appreciating assets and those which do not generate a significant CGT liability.

  • Lifetime gifts to other individuals can reduce IHT as they will not give rise to any IHT when the gift is made and will be totally exempt from IHT if the donor  lives for > 7 years. 

    If the donor dies within 7 years then IHT may become payable on death but provided the donor lives for > 3 years the IHT payable will be reduced by taper relief.

  • There is no IHT saving by lifetime giving of assets that qualify for BPR or APR at 100%.

  • Ensure that estates of husband and wife are shared so that each spouse will fully use their nil bands in the event that they should die at the same time.