There are many legal tools available to support anyone who would like to provide for education in a tax-efficient way.
Inheritance tax allowance: What are the inheritance tax thresholds?
Inheritance tax is the tax payable on the estate of someone who has died. The inheritance tax threshold is £325,000 (or £650,000 if the nil rate band of a deceased spouse or civil partner is available to transfer). In addition, if you leave your home to your children or grandchildren, your threshold may be increased further.
Inheritance tax relief to help you lower your exposure
There are a number of ways you can look to reduce your exposure to inheritance tax. Here are some of the reliefs available.
Inheritance Tax Annual Exemption: This allows you to give away £3,000 completely exempt from inheritance tax which can be rolled over for one year.
Small gifts can lower your Inheritance Tax exposure: – You can give small gifts of up to £250 per person during the tax year. There is no limit to the number of small gifts that can be made, however, you need to ensure that you have not used another exemption on the same person, for instance through the Annual Exemption relief.
Gifts to charity can lower your Inheritance Tax exposure:– All gifts to charity, whether made during your lifetime or under your Will, are wholly exempt from inheritance tax.
Grandchildren’s school fees and savings accounts
It is also possible to give away gifts from excess income so long as these gifts do not adversely affect your standard of living. Depending on your financial circumstances, it may be possible to give away income from savings or dividends from any investments, free of inheritance tax to assist with paying for your grandchildren’s school fees.
The gifts should be regular, carefully recorded, and demonstrably from your excess income, not capital. There are some complex rules surrounding these gifts so it’s important to get expert advice.
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