The following gives some simple examples of ways to reduce your IHT liability.
Transfers between husbands and wives are free of inheritance tax and amounts up to £3,000 may be gifted per tax year to any person, and the previous years allowance may also be gifted if the allowance was not used. Extra gift allowances apply on marriage - £5,000 from each parent, £2,500 from each grandparent and £1,000 from any other person. You can also make unlimited ad hoc gifts of £250 to any number of people!
Potentially Exempt Transfers
These allow you to give away money and escape IHT if you survive for at least seven years. However you can invest in assets which will be 100% relievable for IHT if eligible for business property or agricultural property reliefs (two year PETS!). For example an investment into qualifying shares in the AIM market held for two years or more at the time of death are exempt from IHT. But if you don’t want to give your money away whilst you’re still alive the next few ideas might be more appropriate.
Make sure your Will is valid and up to date and you have gifted the right amount to the right beneficiaries. If you are passing assets to a spouse as well as children, it often makes sense to leave assets you currently hold in the WIll to your spouse (as the spousal exemption ensures there's no IHT to pay) and Pensions or Life Insurance plans in trust to your children.
Some lawyers advise severing the ‘joint tenancy’ on your main residence and owning the house as ‘tenants in common’ so that on first death half the value of the house can be passed to the children (up to the value of the nil rate band) IHT free.
This is perhaps the simplest way of paying for the tax as a life insurance contract is set up to pay the liability to IHT on the death of the surviving spouse. Most importantly make sure this is set up in trust or the payout will simply fall back into the estate and be taxed itself!