The cost of death: Inheritance tax liability is a fact of life for many families with valuable assets. It’s a hefty tax bill to inherit property from a loved one. Learn how you can mitigate it in this guide.

The death of a family member is always a sad time. Death is never easy and it is especially hard when any of your loved ones has passed away, leaving you with a lot of questions. Questions like what will happen to their possessions, who will receive the most important items, and how it will affect the family. This is where inheritance tax comes into play.

What is inheritance tax?

Inheritance tax is a tax that is levied on the beneficiaries of an estate after the death of the person who owns it. It is also known as the estate tax or the death tax, inheritance levy, or death duties.

Who pays inheritance tax?

The person who inherits from the deceased person pays the inheritance tax.

When Is Inheritance Tax due?

Inheritance tax is due within 9 months of receiving an inheritance.

Inheritance tax is a tax that is charged when someone inherits money or property from an individual who has died. The estate tax is a tax on your right to transfer property at your death. In other words, if you don’t plan ahead, your estate may have a substantial portion (40%) of its value stripped away because of this tax.

Are you worried that your inheritance may be subject to taxes? You should be. The good news is that there are ways to minimize or perhaps eliminate your tax liability. Here’s how:

How can you reduce your liability for inheritance tax? 

1. Plan future by making a will:

Making a will ensures who will inherit the assets. It’s a major part of estate planning. Without a will, your assets will be divided equally as per heir laws and may become a tax liability under IHT  for all inheritors.

2. Plan to keep the individual inheritance value below the nil band rate:

 or below threshold to completely mitigate inheritance tax liability which is currently set at £325,000 for a single person.

3. Marriage can save you:

 If you are married, your spouse may be able to inherit the property without paying any inheritance taxes at all. A special marital deduction rule allows spouses to bypass any inheritance taxes that might apply to them, although there are a few limitations.

4. Do some charity:

Assets donated up to 10% can reduce the tax from 40% to 36%.

5. Put assets on trust: 

If you do so, they will not be part of your tax liability. You can even generate income from them if invested with interest.

6. Pay life insurance for your inheritors: 

This money will not be part of your tax liability and will get back to your inheritors.

7. Utilize Portability: 

If your spouse is not available or cannot receive the property due to divorce or some other reason, then you can use a special provision called portability. This provision allows you to pass along any unused estate tax exclusion amount from one spouse to another to avoid paying higher taxes.

8. Gift them: 

Your gift can reduce or even eliminate the value of the inheritance tax liability for you and/or your beneficiaries if you survived for seven years after giving away the gifts.

9.  Consider an equity release scheme:

 or lifetime mortgage scheme on your property by reducing the total value of your left inheritance and thus the tax liability.

10.  Spend it while you live:

Make sure to spend it freely, while you’re alive. There’s no use in living on a tight budget just to be taxed after you die.

In case you are the inheritor according to the will, then you may be eager to get assets from your loved one’s estate because you have an immediate need to pay off medical debts and other costs.

If you wish to get your inheritance right away when a loved one passes away, you can apply for an “inheritance loan” from a bank or another lender. An inheritance tax loan can give you cash while you wait for the probate procedure to be completed which generally takes up a year.

The bottom line:

If you can, it would be a good idea to leave your heirs as much money as you can. Avoiding the inheritance tax could make it possible for your children and other loved ones to avoid some of the financial struggles that many inheritors face.