Paying taxes on your inheritance is a pain. Presumably, you and your loved ones want to keep as much of that money as possible. We’ll discuss some relatively simple ways you can reduce your tax burden from an inheritance right now.
Give Gifts
You might contact some family office lawyers and talk to them about ways to reduce your inheritance tax. They will often have some solid ideas. You can also give money as gifts.
There is a certain amount you can give to an individual as a gift tax-free each year. This is an obvious way to avoid giving up as much in inheritance tax.
Spend More
It might sound odd, but if you spend more, then you will have less money to distribute as an inheritance when you die. If you have fewer assets, there is less money to give away, so the recipients will not have to give up as much in taxes. This is a method that your kids may not like so much, though.
Use Your Pension
There are ways you can manipulate your pension to give up less in inheritance taxes. A pension is treated as being outside of what the law considers to be your estate.
You can pass on a pension free of taxes, though certain rules do apply. You can talk to a lawyer to get more details about this.
Invest in a Tax-Efficient Way
How you invest can also mean having to give up less in inheritance taxes. Some investments, for instance, buy shares in privately-owned companies. If these companies meet the qualifications for business relief, then it is much harder for the government to tax them if they pass into someone else’s control when you die.
Use a Trust
If you set up a trust for someone, like a grandchild, for example, then you have created a separate legal entity. Putting assets in that trust protects them to some degree. It’s almost impossible for the government to tax that money when the time comes for the trust to mature.
Use a Life Insurance Policy
This is an idea that some individuals never think of, but it can be one of the most ingenious on this list. If you set up a life insurance policy and then die, your beneficiary will get money that is tax free. It’s not technically yours, but they’re still getting it on your behalf.
Set Up a Limited Family Partnership
A family partnership can be a way to transfer financial assets to someone tax-free. These partnerships are an estate planning tool that clever individuals have been using for years.
Wedding Gifts
Wedding gifts are tax-free, and they’re separate from the yearly amount you can give someone. Of course, the beneficiary can’t get married every year, though.
Use Allowances
You can use allowances that you are allotted up to a certain point. The nil rate band is an example. It is an inheritance tax threshold that you don’t pay taxes on up to a set amount.
