'I'm an inheritance tax expert - these are the most effective ways to reduce your bill'

Inheritance tax receipts surged by 16.6 percent annually between April and May, hitting an eye-watering £1.4billion in just two months.

This is £200million higher than the same period in the previous tax year and continues the upward trend seen over the last two decades. However, there are ways people can “significantly” reduce their liabilities, an expert has said, and some prove particularly effective.

Jonathan Halberda, specialist financial adviser at Wesleyan Financial Services, said: “Inheritance Tax receipts are already at a record high and, if the threshold remains frozen at £325,000 until 2028, as per current government policy, then it’s inevitable that even more estates will exceed that limit.

“There are a range of exemptions and tax reliefs that have been designed to help families manage their liabilities which people should be aware of. For example, many people’s single biggest asset is likely to be the family home and you have the right to transfer this property to your spouse or children with no Inheritance Tax to pay.

“Effective planning can significantly reduce – and even eliminate – the potential tax due on the rest of your estate too. The rules can be complex, so it will be worth talking to a specialist financial adviser who can help create a tailored plan. Some of the strategies they may recommend work over a period of many years, so the earlier you act, the more of your hard-earned wealth you can keep in the family.”

Pay into a pension

People can pay up to £60,000 into a private pension every year without paying any income tax. Mr Halberda said: “It’s worth making the most of this allowance because money in most pensions is also exempt from Inheritance Tax. However, those who inherit money saved into pension pots will be taxed at their marginal rate of Income Tax.”

Be a gift-giver

Giving gifts of money or assets to loved ones is one of the “most straightforward” ways to reduce Inheritance Tax liabilities, Mr Halberda said. He explained: “In general, every year you are allowed to give gifts of any value to a spouse or partner, or gifts of up to £3,000 to anyone else.

“You can also make regular payments out of your income, which can help stop the value of your estate exceeding the £325,000 tax-free allowance.

“But there are limits: gifts given less than seven years before you die can be taxed, depending on the gift’s value and your relationship to the recipient.”

Try a trust

Another way people can reduce their unheritance tax liability is to put some of their assets in a trust. Mr Halberda explained: “This means they technically don’t belong to you anymore, so they aren’t counted as part of your estate.

“A trust is a legal arrangement where assets are held by a trustee or group of trustees for the benefit of someone else, but you can still control how, when and to whom the money is paid out.”

Plan for your partner

Married couples and civil partners can enjoy certain inheritance tax exemptions. Mr Halberda explained: “You can leave your entire estate – including the family home – to your spouse or civil partner with no Inheritance Tax to pay, even if its value exceeds the £325,000 threshold.

“But couples who are living together, no matter how long they have been in a relationship, don’t qualify for this exemption.”

Subsequently, Mr Halberda noted: “Some couples inheritance planning may include getting married or forming a civil partnership.”

Write a will 

Finally, having an up-to-date will is one of the “most effective ways” to ensure a person’s estate is distributed according to their wishes.

Mr Halberda said: “Without a will, you have no say over who inherits what or how much inheritance tax may have to be paid.

"By making a will, and reviewing it regularly, you can take advantage of all the exemptions and allowances that can help you keep your inheritance tax bill as low as possible.”