Inheritance tax bills can be lowered by giving to charity – how do the rules work? | Personal Finance | Finance


Inheritance Tax (IHT) is usually levied on estates valued higher than £325,000 and there is a standard rate of 40 percent in place. People can reduce how much they pay by taking advantage of trusts and certain “gift” rules.

These rules can get complicated and to do it effectively, professional help will likely be needed.

However, there is one blanked option available that could immediately lower the whole bill.

If the person affected has a will they could leave a “charitable legacy” to an approved charity.

If this is done, it will cut the rate paid on the remainder of the estate.

So long as at least 10 percent of the total estate value has been given to charity, the remainder of the estate will only face a 36 percent IHT bill as opposed to 40 percent.

READ MORE:Inheritance tax warning: Additional taxes can be levied on assets

If the person leaves the home (which will likely make up the bulk of the estate) to children or grandchildren, the threshold can increase to £500,000.

If the home is given away before the person dies, there is normally no IHT to pay if the person involved moved out and lives for another seven years.

If death does occur within seven years, IHT will be levied on a tapered scale.

If death occurs in the three years that the home was given away, 40 percent will be charged.

So long as IHT is due, it must be paid by the end of the sixth month after the person has died.

The bill can be paid from the deceased’s bank, building society or NS&I accounts.

This is done through the “Direct Payment Scheme”.

Details on how bills can be paid in this way can be found on the government’s website.

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