Three in four wealthy families HAVEN’T given away money to ease inheritance tax burden

Nearly three in four wealthy families have yet to make any financial gifts to their loved ones, although there is a way to mitigate this. inheritance taxNew research reveals.

Nearly 73 per cent of wealthy individuals say they have never given a gift as part of their £3,000 annual gift allowance.

That’s according to wealth manager RBC Brewin Dolphin, which surveyed people with a personal income of more than £100,000, investable assets of more than £500,000 or a home worth more than £1 million.

While these wealthy families are concerned about inheritance taxes, only 27 percent have given gifts in their lifetime, according to the research.

As families begin to think about their inheritance, this rate rises to 39 percent for those ages 65 to 74 and 45 percent for those ages 75 and over.

Although 51 percent of those surveyed are most concerned about upcoming inheritance tax changes Autumn BudgetLast year, only 15 percent stepped up gift-giving.

A lifetime cap on the amount of IHT that can be given free of charge during a person’s lifetime is said to be among a number of changes Chancellor Rachel Reeves is considering for the Autumn Budget.

How does inheritance tax work?

IHT, Britain’s most hated tax, is charged at 40 per cent on properties above the £325,000 threshold. Those who leave their estates to direct descendants have an extra tax-free allowance of £175,000; This means a couple can leave a family home worth £1 million free of IHT.

The nil rate band of £325,000 has been frozen until 2023, which will draw more middle-class families into the death tax net as their estates and property values ​​rise.

However, families can donate money and valuables during their lifetime to reduce their estate; This means a lower death tax bill for grieving loved ones.

The donor must generally survive for seven years after making the donation in an amount that will fall out of the estate at death. Experts say the exchequer could increase this figure by up to ten years from November 26.

But everyone gets a fancy allowance of £3,000 each year, which is free of inheritance tax. If you did not use it last year, you can carry your allowance forward one year.

This means a couple can donate up to £12,000 in a year completely free of death tax. The seven-year rule doesn’t apply here, so if you die during the time you give these gifts, you still don’t have to pay taxes.

But this data shows that many wealthy individuals who are extremely likely to leave their families with an IHT bill have yet to start making the most of this lucrative allowance.

Michelle Holgate, director of financial planning at RBC Brewin Dolphin, says: ‘Whilst many wealthy individuals are concerned about possible changes to inheritance tax, it is clear that the overwhelming majority across all age groups are still not taking advantage of annual charitable giving allowances.

‘Our research shows that among those who have started giving gifts, children, grandchildren and charities are the most common recipients of financial gifts; This underlines the strong desire to support loved ones and give back to good causes.’

Other little-known tricks to cut your tax bill

If you want to give any cash or material gifts, do them sooner rather than later to start the seven-year clock ticking.

If you die within seven years of making the gift, the gift does not completely go out of your estate.

However, he/she can benefit from reduction discount. The closer you survive to seven years, the less tax your estate will have to pay.

40 percent of the payments made in the last three years before death are fully collected.

But any gift made four to five years ago faces a 24 per cent charge, while those given five to six years before your death have an IHT rate of 16 per cent.

Those issued six to seven years ago are charged 8 percent. Make payments sooner rather than later to reduce the chances of your loved ones facing a huge 40 percent tax bill.

You can also make the most of your gift funds to transfer your wealth tax-free while you’re still alive.

Everyone receives a gift grant of £3,000 per year, which is exempt from their inheritance. However, you can also give an unlimited number of small gifts of up to £250, as long as you do not use another IHT allowance for the same recipient.

Another way to reduce the tax bill on your estate is to make a tax-free gift to someone who gets married or enters into a civil partnership.

You can give £5,000 to a child, £2,500 to a grandchild or great-grandchild and £1,000 to others.

However, these gifts must be made ‘in exchange’ for marriage or civil partnership, so payments must be made immediately before they take place, not after.

A growing number of families are considering securing life insurance policies to pay off potential tax bills.

These are paid to your loved ones when you die and, if placed in trust correctly, are treated as if they are not part of your estate and are therefore exempt from inheritance tax.

You can designate one or more beneficiaries to whom the full policy amount will be paid when you die.

However, this can be a costly planning tool and may come with some risks.

For example, you can give up coverage if you stop paying premiums at any point.

Once you start paying, it may be difficult to increase your cover if your IHT liability increases. Get expert advice before continuing.

Probably the most generous allowance is known as gifts beyond normal expenses, where you can gift an unlimited amount of money.

Be careful, there are strict criteria you must meet. Payment must be regular, based on income and not affect your standard of living, and you must keep good records.

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