The following are some IHT exceptions that help you reduce the amount of tax.
To reduce the amount of IHT charged on your assets, you can make inheritance tax-free gifts of up to £250 to as many people as you want. Under the annual exemption, you can give away up to £3,000 every year either as a single gift or several gifts.
If you are in a civil relationship or married to a UK spouse, you can leave your assets directly to them to avoid taxation. However there are different rules for individuals who are domiciled outside the UK and who have a UK-domiciled spouse or civil partner and UK-domiciled individuals who have a non-UK domiciled spouse or civil partner.
Gifting your assets to family or friends, with the intention of not benefiting from it anymore, makes the value of the gift included in the IHT, but for seven years only.
Let’s put it into context. For instance, if you gift your friend some amount of money and live for seven more years, the money won’t be included when calculating the IHT when you pass away.
Leaving your assets to charity exempts them from IHT as it benefits a good cause. For example, if you leave at least 10% of your assets to charity, it reduces the tax rate from 36% to 40%. The percentage might not be a lot, but it increases the amount your family and charitable organisations receive.
Buying a life insurance policy will not reduce the IHT directly, but the payout will make it easier for your family members to settle the hospital bills. This will prevent any intent of selling your assets. However, ensure that the life insurance policy goes into a trust to avoid more tax payments.