Giving it all away

Giving it all away. So sang Roger Daltrey in 1973, but what he didn’t mention were death and taxes - the only certainties in life that await us all.  And if you are not careful, the two will arrive at the same time.  I offer no advice on the former, but when it comes to tax there are some options to keep your hard-earned wealth (which has already been taxed once), from the taxman having another bite.

Gifts in your lifetime

The fastest growing tax is Inheritance Tax (IHT) levied at a whopping 40% of your estate over £325,000 (this includes the value of your house although there are limited reliefs on passing it to your children).  Last year, IHT generated almost £5 billion of tax revenue and rises every year.

You, your parents or grandparents may reach the point when you no longer wish to endlessly grow your estate.  “Spend it” is one strategy and was probably the best advice I ever gave to my late aunt 20 years ago when she inherited a tidy sum.  Alternatively, what can you do to reduce your estate?  Quite a lot is the answer.  Each year you can:

  • Give away £3,000 (the annual exemption)
  • Gifts on the occasion of marriage (limits apply)
  • £250 to as many people as you want
  • Financial support to family members

All these fall outside your estate when it comes to calculating your estates IHT liability on death.

Other highly tax efficient strategies are:

  • Gifts made over 7 years before your death are exempt
  • And so are gifts to charities
  • And don’t forget to claim Gift Aid if you are a higher rate taxpayer – it really is win/win.

The charity gets more money and you pay less tax. 

The reading of your Will

Not quite a ton, but you have had a decent innings.  Now it’s time to check the (IHT) score.  You have already given lots away, the recipients were happy and so were you because no tax arose.

Even if you had the foresight to make a Will (did you?) your family will not be pleased at paying £350,000 (40%) on your £1.2m estate.  But by leaving just £87,500 to charity, the IHT rate falls to 36% and the tax bill by £66,500.

Still an outrageous amount, of course, so either give it all away to charity (apart from the £325,000 exemption) or consider setting up a trust if the above figures have an extra “0” on the end.

Your choice.