Inheritance tax: 10 ‘legitimate’ ways to slash IHT liabilities | Personal Finance | Finance

Make larger gifts

People can also pass on as much as they like IHT-free, as long as they live for at least seven years longer from the date of payment.

Mr Davies said: “So long as you live for at least seven years after giving money away, there will be no IHT to pay.”

Leave a legacy and give to charity

Gifts to charities are exempt from IHT provided they are made outright, according to Maria Lonergan, Partner at JMW Solicitors.

These gifts can also lower the inheritance tax rate for the rest of the person’s estate.

Ms Lonergan explained: “When someone has passed away and a gift of 10 percent or more of a taxable estate has been made [to a charity], the rate of IHT [to paid on the rest of the estate] is reduced from 40 percent to 36 percent.”

According to a report, gifts left in wills currently raise £3.4billion annually, which accounts for 16 percent of all fundraised income for UK charities, and this number is expected to double again by 2050.

Use the pension allowance

Mr Davies said: “Pensions are not usually subject to IHT – they can be passed on tax efficiently and, in some cases, even tax-free.

“If you have any pension allowance left, make use of it.”

Set up a trust

Trusts have traditionally been a staple of inheritance tax planning, according to Mr Davies.

He explained: “They can mean money falls outside an estate if you live for at least seven years after establishing the trust.”

However, he notes: “The related taxes and laws are complicated – you should seek specialist advice if you’re considering this.”