Save your money and give it away

  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Richard T Lishman from money4dentists considers ways to reduce inheritance tax

When working towards retirement and planning for the future, it’s natural to want to preserve as much of your fortune as possible, rather than give it away to the taxman. With the help of a specialist adviser this is easily achievable – here’s how.

Chargeable Lifetime Transfer: When Inheritance Tax (IHT) is calculated after death, any estate worth more than the nil rate tax band of £325,000 is taxed at 40 per cent. By gifting money to a company or property trust during your lifetime, however, the tax rate is reduced to a rate of 20 per cent (if the value of the gift is above the nil rate tax band). This is known as a Chargeable Lifetime Transfer. It’s important to note, however, that if you were to die within seven years of making the transfer, the gift would incur additional charges.

Potentially exempt transfer (PET): With no limit on such transfers and exempt from IHT, PETs are a canny way to dissolve assets. The only catch is that you would need to survive the transfer by seven years otherwise tax would be due on the total value of the gift, the amount of which would vary depending on how many years before death the gift was made. As it stands, the rates are: 0 per cent reduction for 0-3 years, 20 per cent reduction for 3-4 years, 40 per cent reduction for 4-5 years, 60 per cent reduction for 5-6 years and 80 per cent reduction between 6 and 7 years.

Exemptions: You could also minimise your tax liabilities by making the most of exempted gifts. These include:

• Annual exemption, which is where the first £3,000 of lifetime transfers in any tax year is exempt from IHT. Conveniently, any unused annual exemption can be carried forward to the next year but not thereafter.
• Each year, wedding or civil ceremony gifts worth up to £1,000 per person, or £2,500 for a grandchild or great-grandchild and £5,000 for a child can be given away.
• Any gift below £250 is free from IHT, as long as no other form of exemption has been used.
• Payments to an elderly relative or minor to help with living costs.

With meticulous preparation and careful planning, gifting money will help you reduce tax liability in the long-term, ensuring your hard-earned money will be passed on to your loved ones. For more information about how to reduce your tax bill, contact the experienced team at the 4dentists group.

For more information call 0845 345 5060 or 0754 DENTIST, email This email address is being protected from spambots. You need JavaScript enabled to view it.  or visit 

Photo by Steven Van Loy on Unsplash