Published On: Thu, Feb 14th, 2019

Become tax savvy to save thousands of pounds

New research shows that half of over-45s do not realise their main property may be subject to inheritance tax (IHT), and could face a shock demand from HM Revenue & Customs as a result. As the end of the tax year looms, people are being urged to make efforts to keep their tax bill to a minimum.


IHT has been called Britain’s most hated tax because it can cost ordinary families tens of thousands of pounds.

Yet seven out of 10 do not even know the IHT threshold, according to Canada Life’s annual IHT Monitor, even though it has been frozen at £325,000 since April 2009.

Rules are complex though, as married couples can double their allowance to £650,000, while the main residence nil-rate band allows families to shield up to £1 million in total.

Canada Life market development manager Neil Jones said: “IHT ignorance is rising at an alarming rate and there is no indication this will stop.”


IHT is charged at a hefty 40 percent on assets above the threshold and receipts topped £5.2 billion in 2018.

The Government has been looking at simplifying IHT and Sean McCann, chartered financial planner at NFU Mutual, called for action: “Inheritance tax is deeply unpopular and fiendishly complicated.”

You cannot simply give money away as this will be seen as a partially exempt transfer and remain taxable for seven years.

However, you can cut your exposure by making gifts before the end of the tax year, including £3,000 with instant exemption, which couples can double to £6,000. You can mop up any unused allowance from the last tax year.

You can make unlimited gifts of up to £250 to others, and wedding gifts of up to £5,000 for a child, £2,500 for a grandchild or £1,000 for anyone else.

If you leave more than 10 percent of your estate’s total value to charity, the IHT rate on the remainder falls to 36 per cent.


Last year the Institute of Fiscal Studies warned Britons face 20 years of tax rises to meet Government spending commitments.

Sarah Coles, personal finance expert at Hargreaves Lansdown, said: “You must take advantage of schemes designed to help reduce your bill.”

You have until April 5 to use this year’s £20,000 ISA allowance that allows you to save in cash and stocks and shares free of tax.

“If you don’t use it, you’ll lose it, so put away whatever you can afford,” Coles said.

People aged 18-39 who want to buy a home should use a Lifetime Isa which offers a Government-funded bonus worth up to £1,000 if you put away the maximum £4,000 this year.

Parents and grandparents can save up to £4,260 in a Junior ISA.


Pension contributions attract tax relief at your marginal rate.

Coles said: “Even non-earners have an allowance of £3,600 and you can even contribute tax-efficiently to a child’s pension.”

Also consider putting money into Premium Bonds. The prize fund interest rate is just 1.40 percent but it is tax-free.

Coles said assets that produce an income, such as non-ISA shares, bonds, funds and buy-to-let property, can be passed between spouses without triggering a tax bill: “If held by the spouse paying the lower rate of tax, that reduces the tax bill.”

The marriage allowance could save a couple £237 a year where one pays basic rate tax and the other has no liability, and can be backdated.

Coles added: “You can take capital gains of up to £11,700 before paying tax so spread any gains to avoid exceeding the threshold, or use the spouse allowance too.”

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