How to avoid inheritance tax and save your family £140k

Bereaved families face paying up to £140,000 in avoidable inheritance tax due to bewilderment over the death duty’s “most confusing” rule. 

Since 2018 homeowners have benefited from extra tax breaks on their main home when passing it on to a direct descendent, known as the “main residence nil rate band”, or “family home allowance”. Today this stands at £175,000 and comes on top of the standard £325,000 allowance. Spouses and civil partners can share their allowances. 

People who sell an expensive property to downsize or to go into care can claim a tax credit known as the “downsizing addition” so they still qualify for the enhanced protections.

But many are unaware they qualify. The Government’s own tax adviser, the Office of Tax Simplification, said in a report that downsizing rules were most complicated aspect of the 40pc death tax and that virtually no one was able to work them out without the help of professionals. 

Now, with more people downsizing, living longer and moving into care in later life, an increasing number risk missing out. 

If you’re looking to lower the inheritance tax you pay in the UK, read our tip below.

Inheritance tax hack for 2022 

How downsizing helps to reduce inheritance tax in the UK

Almost two million people said they planned to downsize in 2020, after the stamp duty holiday removed one of the greatest barriers to moving, according to property builders Audley Villages.

Sean McCann of advisers NFU Mutual said the rules were “horrendously complex”. 

“They are meant to stop people from rattling around big houses to make the most of tax breaks on their homes, but it is the families who have to claim the addition and most lay executors have no idea it exists at all. 

“More people are downsizing because of the stamp duty holiday and our ageing population means more and more are selling their homes and moving into care.

“What’s more, the rules apply to anyone who has sold their home or downsized to a smaller property since July 2015. It means the window on claims is growing and more people will be caught out over time, needlessly losing thousands to the taxman.” 

Missing out can cost families six-figure sums. 

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