There are ways to legally avoid Inheritance Tax (IHT), such as via reliefs and exemptions. It's something which some may decide to look into, in the hopes of ensuring their estate is not subject to the tax.
Usually though, there's no Inheritance Tax to pay if the value of the estate is below the £325,000 threshold.
Furthermore, if everything above the £325,000 threshold is left to the person's spouse, civil partner, a charity or an amateur sports club, then there's normally no Inheritance Tax to pay.
There are also ways to increase this threshold.
For instance, if a person gives their home to their children or grandchildren, the threshold can increase to £500,000.
Additionally, if people are married or in a civil partnership, and their estate is worth less than their threshold, any unused threshold can be added to their partner's threshold when they die.
It means their threshold can therefore be as much as £1million.
The standard Inheritance Tax rate is currently 40 percent.
This rate is only charged on the part of the estate that's above the threshold.
DON'T MISS
Those looking at ways to mitigate Inheritance Tax liabilities may look into gifting during their lifetime.
However, it's very important to be aware some gifts that are given when a person is alive may be taxed after their death.
Some gifts can be given which are known as "exempted gifts".
Furthermore, there's no Inheritance Tax to pay on gifts between spouses or civil partners, provided they live in the UK permanently.
"Depending on when you gave the gift, ‘taper relief’ might mean the Inheritance Tax charged on the gift is less than 40 percent," explains GOV.UK.
This is known as the seven-year rule.
"If there’s Inheritance Tax to pay, it’s charged at 40 percent on gifts given in the three years before you die," the Government website states.
"Gifts made three to seven years before your death are taxed on a sliding scale known as ‘taper relief’."
Nathan Valbonesi, financial planner Weatherbys Private Bank, recently discussed various tips for over 50s who are planning for retirement.
“Getting a head start with your financial plans in your 50s will give you greater visibility on how your retirement will pan out – you will know how much you need to maintain your current lifestyle," he said.
"It will also enable you to make the most of rules to ensure that you are managing your wealth in the most tax-efficient way.”
Among his suggestions, the financial planner urged people to remember the seven-year gifting rule.
"Gifting is a good way to mitigate potential inheritance tax liabilities but remember the seven-year rule – if the total value of your gifts is within the IHT nil rate band threshold of £325,000 and you die within seven years, the gifts themselves will not be taxable," Mr Valbonesi said.
"However, if you give away more than the nil rate band and you die within seven years, what is left in your estate over the nil rate band will be subject to IHT – as much as 40 percent."
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