You can slash inheritance tax with gifts

Inheritance tax is a 40 percent tax that has to be paid on any total assets that a person inherits, that are worth more than £325,000 from an individual or £650,000 from a couple – although it may be possible to increase the threshold further. A person can give away up to £3,000 a year divided between any number of people and also give away any number of gifts of up to £250 a year, to different people.There is also the option to give away a larger sum of money to a friend or relative but in this case there is an important rule that people should be aware of.The person has to live for seven years after the gift is given to avoid the tax, although the rate of the tax does reduce as the years progress towards the seventh year.This is how the rate of the tax changes depending on the years between the giving of the gift and the person’s death:Three to four years – 32 percentFour to five years – 24 percentFive to six years – 16 percentSix to seven years – 8 percentSeven years or more – 0 percent.READ MORE: Universal Credit warning as your earnings could impact the amount you get People can reduce their inheritance tax liability by giving away gifts (Image: GETTY)Gifts can include an amount of money, household and personal goods, a property or land, or stocks and shares.Gifts between spouses or civil partners avoid the tax as long as the person receiving the gift lives in the UK.People can also avoid the tax by giving money away to charities or political parties, as there is no tax to pay in this case.There is also the option to give gifts to someone who is getting married or entering a civil partnership.DON’T MISSRishi Sunak pressed on state pension triple lock [UPDATE]Coventry Building Society offers up to 4.85% on new savings accounts [ALERT]Martin Lewis explains how you can avoid being taxed on savings [INSIGHT]70 health conditions qualify for PIP payments worth £627 a month [UPDATE] People can reduce their inheritance tax liability by giving away gifts (Image: EXPRESS)Other tips are to be sure to make a will, explaining how a person wants their estate to be distributed, to avoid being taxed unnecessarily.Pension schemes often have allowances which will avoid inheritance tax, and the funds can be inherited when a person dies.Setting up a trust to handle a person’s assets after their death is another way to avoid paying tax, although trusts can be complicated to set up, so it may be a good idea to seek legal advice.Britons can also avoid the tax by investing their funds in a company that gets business property relief.