How can I avoid Inheritance Tax?
Question How can I plan to avoid inheritance tax?
The single most cost-effective way to avoid IHT is to give away assets and hope to survive for seven years!
However most people don't wish to do so for three reasons:
a) they still want to benefit from the assets themselves,
b) they don't trust the recipients, and
c) a capital gain can often be triggered when gifting assets.
A discretionary trust can sometimes help to overcome b) and c).
Another effective way of avoiding IHT is to convert one's property into qualifying business assets, which are 100% exempt from IHT.
These are basically an interest in a trade (a sole trade or a partnership) or shares in a trading company that have been owned for two years.
However investments and shares in an investment company do not qualify.
A similar 100% exemption applies to qualifying agricultural property.
A not so commonly known method of avoidance is relevant to people with large amounts of regular annual income, some of which they don't use.
If they get into the habit of giving away a proportion of their income every year, while still maintaining their normal lifestyle, then even if they don't survive for seven years, this will fall out of their IHT computation.
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