Euro Canals News

Your most trusted news channel

is a 40 percent tax that applies to any total inherited assets from an individual worth more than £325,000, or any total assets above £650,000 inherited from a couple. People often give away gifts to reduce the size of the estate their successors will inherit helping minimise the tax bill.

There are allowances for how much a person can give away each year and avoid paying the .

But a person can also give away a larger gift of up to any amount and avoid paying the tax, as long as they live for another seven years after the gift is given.

However, Britons may want to note the amount of inheritance tax the inheritor will pay on the gift is gradually reduced as the seven-year anniversary approaches.

This reduction is known as taper relief and will only apply if the gift is over the £325,000 tax-free threshold and outside of the gifts allowance, as otherwise there will be no IHT to pay on the inherited assets.


The amount of IHT the person will pay on the gift starts to reduce after three years. This is how it reduces:

  • Three to four years – 32 percent
  • Four to five years – 24 percent
  • Five to six years – 16 percent
  • Six to seven years – Eight percent
  • Seven or more years – Zero percent.

A person also has an annual gift allowance of £3,000, which they can give away split between any number of people and avoid IHT.

The allowance works on an individual basis so a couple together have a £6,000 gift allowance to use.

They can also give away any number of £250 gifts tax-free or give away gifts to friends or loved ones who are getting married or entering a civil partnership.

This includes gifts of up to £5,000 for a child, up to £2,500 for a grandchild or great-grandchild or up to £1,000 for any other person.


People have to pay their IHT bill within six months of the death of the person from whom they inherited the amount.

Another way to reduce a person’s estate and to avoid inheritance tax is to invest funds in tax-free savings vehicles such as and .

When setting up a pension, it’s important to have an Expression of Wish or equivalent document, to outline who should inherit the pension funds when the person dies.

One common way to arrange this is in a 98 percent, one percent, one percent format, with the person’s spouse or partner inheriting 98 percent of the scheme while each of their children receive one percent each.

When the person who holds the 98 percent eventually dies, the two children then can receive 50 percent of the pot each.

For the latest personal finance news, follow us on Twitter @ExpressMoney_.