Published On: Thu, Oct 3rd, 2019

How to legally reduce Inheritance Tax bill – paying into this ISA could slash amount | Personal Finance | Finance

Shona Lowe, Private Client & Corporate Director at 1825, the financial planning arm of Standard Life, has shared some top tips for grandparents on the matter.

Ms Lowe said: “Inheritance planning is all too commonly associated with what people leave behind when they pass away.

“But, for those looking to make the most of their tax allowances, inheritance planning should come into play a lot earlier in life.

“With so much wealth sitting with the older generations many will face an Inheritance Tax problem, but proper financial planning and advice can reduce that bill for their loved ones.”

Start saving for their future

“All you need to open a bank account in your grandchild’s name is a birth certificate,” Ms Lowe explained.

“It’s a good way to start a savings habit and can be introduced to them as they get older.

“Any money paid in by you will be out of your estate for IHT straight away if it falls within one of the exemptions, and the interest earned will not be yours for tax purposes.”

Get gifting

“Grandparents can each gift up to £3,000 a year to loved ones without incurring an inheritance tax bill and the amount gifted is straight out of their estate for IHT purposes, with no need to wait for seven years.

“This can be increased to £6,000 as both granny and grandad have the tax-free allowance on gifts up to £3,000.

“Also, if you haven’t used your allowance from last year this can be carried over for one year only so for grandparents who are new to gifting, you can gift £12,000 between you.”

Gift a bit more

“In addition to the annual allowance of £3,000, grandparents can gift £2,500 to their grandchildren as a wedding, or civil ceremony, gift.

“Again, this can be doubled if both grandparents are gifting. And, grandparents can also give up to £250 as often as they want to different people during the tax year.

“Gifting little and often can help grandchildren with monthly expenses or can be set aside for bigger expenses.”

Ms Lowe also discussed how a grandparent can pay into a Junior ISA – although it’s a parent or a guardian who can open this type of account for under 16s.

“Grandparents can also pay up to £4,368 into a Junior ISA for a grandchild [in the 2019 to 2020 tax year],” she said.

“This money isn’t accessible until the child is 18 so is a good way to build a pot of money for the future.”

Make sure your will is up to date

“An age-old tip but its importance can’t be underestimated.

“Keeping your will up to date as circumstances change is key and can ensure you pass on as much as possible to the people you want in the way you want in as tax-efficient a way as possible.”

In grandparents we trust

“If the loss of control over money once it has been gifted makes you feel unsettled, then don’t ignore trusts.

“Trusts can help you protect money, maintain some control and are often a key part of an overall inheritance planning exercise.

“You decide how much you want to put in the trust, who you want to make decisions about what’s in the trust and who you want to benefit.

“There are lots of different types of trust that each come with their own tax rules so it’s best to consult a specialist to ensure you choose the one that best suits you and your grandchild’s future needs.”

READ MORE: Inheritance Tax threshold ‘should be doubled’, poll shows – how Brits responded across UK

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