Four ways to cut your IHT bill

Natalie Stanton explains how you can manage your finances later in life to ensure your family isn’t charged more than necessary when you die.

Inheritance tax (IHT) is deeply unpopular with MoneyWeek readers. It's also highly lucrative for the government: in the year to April 2016, the Treasury pocketed £4.66bn from IHT, and by 2021 this is expected to rise to more than £5.7bn per year. However, there are ways that you can manage your finances later in life to ensure your family isn't charged more than necessary when you die.

First, thanks to very generous rules brought in by George Osborne two years ago, defined contribution (DC) pension funds can be passed on to your heirs without paying any IHT (they just pay income tax at their marginal rate when they withdraw the money). This means that while our pension fund used to be the main way for us to generate a retirement income, today they are pretty much the last thing you want to touch if your priority is to minimise IHT. Instead, you should focus on running down your other assets outside the pension and leaving as much as possible within the pension wrapper.

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Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide. 

She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.