Five ‘new tax year resolutions’ Britons should consider to slice their IHT liability | Personal Finance | Finance

The 2021 to 2022 tax year will end on April 5, providing Britons with plenty of worries to ensure their financial situation is compliant and take advantage of the opportunity to potentially lower their tax bills. Wealth planner at Succession Wealth, George Thomas, shared five “new tax year resolutions” Britons should consider regarding inheritance tax.

Inheritance tax (IHT) currently sits at an immense rate of 40 percent. This is due on the value of an estate over the current nil rate band.

However, there is a lot more to consider than just the tax bill when passing on an estate. 

Certain circumstances like not leaving a will or gifting money or possessions within seven years of one’s death can also complicate matters.

Mr Thomas shared his top five considerations Britons should look into this tax new year. 

Make a will and review it

Dying without a will can significantly increase the burden, both financially and emotionally, on one’s heirs as they have to sift through what is left of one’s possessions whilst dealing with grief. 

As Mr Thomas explained: “If you die without making a Will, your assets will be divided between your relatives according to the intestacy rules. 

“Your surviving spouse or registered civil partner may only receive a portion of your estate, and Inheritance Tax will be due at 40 percent on anything in your estate above £325,000.”

The £325,000 threshold is the nil rate band, and leaving one’s property to their children or grandchildren can increase this to £500,000 through the residence nil rate band. 

The easiest way to ensure that all of one’s items are left to the correct individuals, and to help them potentially avoid a large tax burden, is to create a will and constantly review it to ensure it isn’t out of date when it needs to be used. 

Charitable donations

The thought of a 40 percent tax bill is enough to scare many away from delving deeper into the IHT topic, but there are ways to decrease this amount. 

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Mr Thomas highlighted that Britons can also combine this allowance with their £3,000 a year IHT exemption.

Additionally, grandparents can gift their grandchildren £2,500 for their wedding. 

Make IHT-free gifts each tax year

Mr Thomas shared: “These gifts are free of IHT and, if you forget to make your £3,000 gift one year, you can catch up in the next tax year by giving a total of £6,000 but you can only carry forward the £3,000 allowance for one tax year.

“Remember, you and your spouse or registered civil partner can each give £3,000 out of your capital every tax year, in addition to gifts you make out of your regular income.

“This is where the importance of noting the tax year end instead of the normal year end comes in as Britons must remember their allowances last from April to April rather than January to December of each year.”