Inheritance tax currently stands at 40 percent of the value of an estate above a particular threshold. It usually stands at £325,000, although this can differ in some circumstances, which people should always investigate. There is normally no Inheritance Tax to pay in two separate instances which Britons should keep an eye out for.
Other than leaving the value of an estate above the threshold to these groups, however, there are particular ways people may be able to legally reduce their bill.
If a person gives away their home to their children or grandchildren, they can increase their threshold to £500,000 meaning there will be less to pay.
In this case, there will be no Inheritance Tax to pay if a person moves out of this property and lives for another seven years.
If they wish to continue living there, they must pay rent to the new owner at the going rate, pay their share of the bills, and live there for at least seven years.
Business owners may also be able to reduce their Inheritance Tax bill through Business Relief.
This allows some assets to be passed on free of the tax, or with a reduced bill.
Furthermore, those who own farms or woodland could benefit from Agricultural Relief if they get in touch with HMRC.
However, a main way many Britons seek to reduce or eradicate their IHT bill is through gift-giving.
The government website states: “If there is Inheritance Tax to pay, it’s charged at 40 percent on gifts given in the three years before you die.
“Gifts made three to seven years before your death are taxed on a sliding scale known as taper relief.”
Gifts given three to four years before a person’s death are subject to 32 percent tax.
Four to five years before death, gifts have a 24 percent tax rate, reducing to 16 percent five to six years before death.
Finally, gifts given six to seven years before death are taxed at eight percent, with gifts given over seven years prior to death tax-free.
Britons who have any questions surrounding Inheritance Tax or the amount they have to pay are encouraged to reach out to HMRC on the dedicated Inheritance Tax and probate helpline.