What Is the Most Common Inheritance Tax Mistake?
The most common inheritance tax mistake is failing to make a valid, up-to-date will, or dying without one at all. Without a will, your estate is distributed under the intestacy rules, which may not reflect your wishes and can cause you to waste available IHT allowances. The knock-on effects of that single mistake touch almost everything else.
For example, not leaving your property directly to children or grandchildren means losing up to £175,000 of tax-free allowance per person through the residence nil-rate band. A properly drafted will would prevent that.
Another frequent error is misunderstanding taper relief. Many people believe that making a gift and surviving three or four years guarantees a tax saving. In reality, taper relief only reduces the tax on the portion of a gift that exceeds the £325,000 nil-rate band.
If the gift is within the nil-rate band, there is nothing to taper. Gifts made shortly before death do not escape IHT either, if the donor dies within seven years.
One lesser-known mistake is not using a deed of variation. Beneficiaries who receive an inheritance can redirect it within two years of the death, reducing IHT at the next generation. Many families never know this option exists, and so the opportunity passes them by.
For example, not leaving your property directly to children or grandchildren means losing up to £175,000 of tax-free allowance per person through the residence nil-rate band. A properly drafted will would prevent that.
Another frequent error is misunderstanding taper relief. Many people believe that making a gift and surviving three or four years guarantees a tax saving. In reality, taper relief only reduces the tax on the portion of a gift that exceeds the £325,000 nil-rate band.
If the gift is within the nil-rate band, there is nothing to taper. Gifts made shortly before death do not escape IHT either, if the donor dies within seven years.
One lesser-known mistake is not using a deed of variation. Beneficiaries who receive an inheritance can redirect it within two years of the death, reducing IHT at the next generation. Many families never know this option exists, and so the opportunity passes them by.