THE impact of Inheritance tax (IHT) on individuals and families is growing. Government receipts for April 2021 to March 2022 were £6.1 billion, £700 million higher than in the same period a year earlier.

There are, however, a number of strategies to help mitigate your liability with careful financial planning. The key is to start as early as possible.

Normal expenditure gifts

If you make gifts that are:

* regular

* out of your income (including ISA income); and

* do not reduce your standard of living

These are exempt from IHT, regardless of their size. The exemption could mean, for example, that if your regular spending pattern has fallen because of the pandemic, you could use the savings to make gifts free of IHT. Similarly, any investment income usually automatically reinvested is a potential source of normal expenditure gifts.

Outright lifetime gifts

Outright gifts suffer no immediate IHT liability and are free of IHT if you survive seven years after making them. If you do not reach the seven-year point, any IHT liability on the gift is reduced by 20% per year from the start of the fourth year, e.g. at five and a half years only 40% of the full IHT is payable on death.

Annual & Small Gifts Exemptions

The annual exemption rate is set at £3,000 and married couples are able to utilise two allowances, giving them a total of £6,000 per year to use.

The £250 ‘small gifts’ exemption enables you to give £250 to any number of people of your choosing and will immediately be exempt from IHT. However, the drawbacks of this exemption mean you are unable to use it together with other exemptions and can’t be included in a larger gift.

Despite these amounts seeming small relative to someone with a significant estate, the annual exemption’s compound effect over a period of time can generate significant IHT savings.

There are also other steps you that can be taken in addition to these mentioned above, however, with any financial and tax planning around this area it is advisable to seek advice as to what step(s) is most appropriate for you and your family.

Please get in touch with David Porter on 01756 620000 to discuss how we can help or email