Inheritance tax is a topic that often evokes confusion, misconceptions, and even controversy. As a tax imposed on the estates of individuals who have passed away, it is seen by many as an additional burden on grieving families. However, understanding the intricacies of inheritance tax is crucial to dispelling the myths surrounding it and making well-informed decisions.

Why does inheritance tax (IHT) Exist?

Let's take a trip down memory lane, shall we? Inheritance Tax has actually been around for quite some time. It was first introduced in the UK way back in 1694 as a way to fund war efforts. Since then, it has evolved and changed, with various thresholds and rates being introduced over the years. It is now a fiendishly complicated tax to navigate.

Common Misconceptions about Inheritance Tax

**There is no IHT if I live for more than 7 years after a gift**

An individual can make gifts of unlimited value that become exempt from inheritance tax if they survive for a further seven years, known as a “potentially exempt transfer”. Most people think if they give away money and die before the seven year limit, they will still get tapering relief, but that is not how it works.
If individuals make a gift and then die within seven years, the value of the gift eats into the £325,000 tax free IHT allowance. This means your full IHT allowance may not be available on your death, and your estate may pay more tax as a result.
The tapering of the tax only applies if you give away more than £325,000 in the seven year period.

I can gift assets, like my home, while i’m alive and still enjoy its use

Once you make a gift to remove it from your estate so it is not counted as part of your estate once you die, say your home, a holiday home, or a second property, you must not receive any interest from the asset.

For example, if you give away your home to your children, you can’t still live in the property for free, as you would still have an interest in the property, a connection. In this case, you could pay market rent to your children to stay in the property and have a formal rental agreement in place, and of course, your children will have full control of the asset from the date of the gift.

Another common mistake is giving away your share portfolio while still wanting to live off the dividends. Or giving away a buy-to-let property but still receiving the rent.

**Inheritance Tax Planning is Only for the Wealthy**

Think Inheritance Tax planning is only for the elite?
Think again! While it's true that the wealthy may have more complex estates to deal with, anyone can benefit from tax planning. There are various legal strategies and options available that can help reduce the burden of Inheritance Tax, regardless of the size of your estate. So, don't let the misconception hold you back from exploring your options.

Inheritance Tax Planning is Complex and Time-Consuming

Here's some good news: You don't have to become a tax expert overnight. Inheritance Tax planning can be complex, but that's why there are professionals out there who specialize in this stuff. They can help guide you through the process and make it as painless as possible. So, while it may take some time and effort, it's definitely worth considering if you want to ensure your hard-earned assets stay in the family.

The Benefits of Proper Inheritance Tax Planning

Proper inheritance tax planning not only ensures your loved ones receive the maximum inheritance possible but also provides peace of mind. By taking proactive steps to plan for your estate, you can minimize the financial burden on your beneficiaries and leave a lasting legacy.

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