Although Inheritance Tax planning may be perceived as a tax that only applies to the wealthy, this is often not the reality. Currently the Inheritance Tax threshold in the UK is £325,000 for estates, although it is possible to transfer a threshold to a surviving spouse or civil partner.

Generally Inheritance Tax becomes due approximately six after the date of death with interest accruing thereafter. The rate of tax charged is 40% above the threshold. Therefore, an estate valued at £350,000 would be liable for tax of £10,000.

There are some categories that are exempt or attract relief from Inheritance Tax. Spouses or civil partners are not liable if their permanent home is in the UK. Any gifts received in the lifetime of the benefactor are also exempt. Qualifying charities may avoid an Inheritance Tax liability for donations and gifts to individuals are also exempt, as long as the benefactor survives for seven years after making the gift, regardless of the value. An individual can give away gifts up to a total value of £3,000 per annum. However, there is no limit to the number of smaller gifts given (up to £250 per person). Additionally wedding or civil partnership gifts are also exempt up to a certain amount. Some relief from Inheritance Tax is also permissible for some business, woodland, heritage or farm property.

By planning for a future Inheritance Tax liability, it is possible to offset the amount that will be due. Where a large gift is made during one’s lifetime, the key is to survive for at least seven years, thus negating the tax liability. Clearly this is somewhat outside the control of the individual. However, taking out a life insurance policy for the relevant period and equaling the Inheritance Tax liability can often be an inexpensive solution to a potentially expensive problem. It is also possible to carry forward the annual £3,000 allowance for one year. Combining this in two years will enable an individual to gift £6,000 without incurring an Inheritance Tax liability.