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It can be frustrating to work hard all your life and build up assets to leave to your loved ones when you die, only to pay 40 percent of the amount over the current threshold back to HM Revenue & Customs in tax. One of the simplest ways to reduce the amount of Inheritance Tax to be paid, is to give away or spend your wealth during your lifetime.

A married couple or civil partnership may make gifts of assets to each other during their lifetime without paying Inheritance Tax, providing both parties are resident in the UK. If you make a gift to a person and survive for a further seven years, the gift becomes exempt from Inheritance Tax. An annual exemption of £3000 is also allowed, with each spouse or partner being able to make a gift up to this amount.

Equity release schemes are also taken out by people who would rather give some money away or spend it on themselves, rather than keep the money tied up in property which may be liable to Inheritance Tax when they die. Typically, you release some of the cash tied up in your home by borrowing against the property value. You can also sell a proportion of your property at a reduced rate, although you are allowed to live in the property for the rest of your life. The money may be distributed as gifts or you could spend it on yourself. However, there are drawbacks to this scheme. There are many other ways to reduce Inheritance Tax, and professional advice is necessary.

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