Although the government has recently introduced rules to limit the inheritance tax saving on certain types of trusts, there are still basic steps that you can take to lessen your potential inheritance tax liability.

Using the nil rate band and, potentially, exempt transfers

The nil rate band or threshold, above which inheritance tax payable is £325,000 , so that gifts up to this sum will not trigger an immediate charge to tax. If you survive for seven years after making any size of gift it will fall out of your estate completely for tax purposes (provided you have not reserved any benefit in, for example continuing to live in your home after transferring ownership to someone else). If you do not survive for seven years but the gift is under the nil rate band, generally speaking it will not be included as part of your estate on death.

Annual exemption

There are no seven year survival conditions for gifts up to the annual exemption limit (currently £3,000). If this is unused in one year it may be carried forward for one further year only so that a husband and wife could make gifts up to £12,000 in one year if nothing was gifted in the previous year.

Small gifts

Something that is often overlooked is the exemption for small gifts. An individual may gift up to £250 each year to any number of beneficiaries and it is immediately exempt from inheritance tax. This could be useful for grandparents with several grandchildren; over a number of years the amount extracted from their estate by way of tax saving could be quite substantial.

Gifts in consideration of marriage

Parents should remember that provided certain conditions are met each parent can gift £5000 to their child on the event of their marriage. Grandparents can give £2,500 in these circumstances.

Normal expenditure (gifts) out of income

This is another way to maximise the amount gifted to members of your family or any individual. Certain conditions have to be met:

• the gift must be out of post tax income
• it should be considered to be normal expenditure in other words that it can be shown to be that habitual gifts of this type have been made in the past at the date of death
• the donor must be able to show that following the gift they are left with sufficient income to maintain their usual standard of living

Spouse exemption

It is important to remember that gifts between spouses are always exempt (unless one spouse is foreign domiciled) and this can be important when considering tax saving Wills. An equalisation of the assets may be needed and gifts to achieve this will be exempt

Other exemptions

Gifts to charities and political parties are free of inheritance tax

Taken together, the various exemptions that are available can provide opportunities to make substantial inheritance tax savings over time.