7 Ways to Beat the Taxman
7 Ways To Beat The Taxman When You Die
The directors of Will Drafters
Ltd, David Crossland and Michelle Hanover, are now urging everyone
to make sure they don’t leave anything to the taxman when they die.
Mary Harris met up with them recently to find out how.
Mary: “Death duties or what is now called Inheritance Tax is a rather
befuddling subject for most people. Can you please explain what the
current situation is?”
David: In simple terms, anything you leave to your legally married
spouse is free of inheritance tax. Anything else is taxed at 40%
for the whole amount exceeding £255,000. So, for example, if you
leave £350,000 then the taxman will take £38,000.
Mary: “Wow! That’s a huge amount. Are there any ways round this?”
Michelle: “There are, but before we move on we need to emphasise that
with any method for reducing Inheritance Tax there is always a down
side. So, we strongly recommend that you speak to an independent financial
adviser before taking any action”.
Mary: “Point taken. So, what’s the first thing you should consider?”
David: “By what’s called the ‘small gifts exemption’ you can make any
number of gifts to different people up to a value of £250 each in any
tax year”.
Mary: “Yes, that’s a good idea, and is there anything?”
Michelle: “You can also use the ‘annual exemption’, which allows each
person to give away, before his or her death, up to £3,000pa”.
Mary: “That’s handy. My daughter is getting married soon”.
David: “Yes, however, the taxman does also give a ‘marriage gifts exemption’,
which allows parents to make wedding gifts of up to £5,000 to each of
their children. And grandparents can also make gifts of up to £2,500
to each marrying grandchild. Also, you can give up to £1,000 as a wedding
gift to anyone else. The gifts must be made before the wedding day,
not after”.
Mary: “I notice that charities are always encouraging people to
make a Will. Why is that?”
Michelle: “The taxman has recognised the importance of giving to charity
and therefore includes any gift though a Will as an additional allowance.
This means that, in the example David gave earlier, if the person worth
£350,000 had gifted £100,000 to charity the taxman would not get anything.
Mary: “Can’t I just give everything away before I die?”
David: “The taxman has a name for this. It’s called a ‘potentially
exempt transfer’ or PETs. To avoid your estate paying tax on large gifts
made before your death you need to live at least 7 years, from the date
when the gift was made. If you die during the 7-year period the amount
of Inheritance Tax payable reduces the longer the time after the gift
has been made. This is known as Tapering Relief”.
Michelle: “There are other things you can do involving trusts but this
is where an IFA can best advise”.
Will Drafters offer a convenient Wills-by-phone service and have written
over 90,000 Wills since the two directors founded it in 1990.
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