The word tax on top of some moneyGETTY

However, inheritance tax (IHT) is also one of the easier taxes to avoid legally, provided you plan carefully and use various allowances.

In exclusive research for the Sunday Express, tax experts at Prudential have highlighted a way both to reduce your IHT bill and save for loved ones at the same time, giving a double tax benefit.

TAXED TO DEATH

Benjamin Franklin famously said the only two certainties in life are death and taxes, and IHT combines both to grisly effect.

However, there is nothing certain about the amount of tax you have to pay, because unlike the grim reaper, HMRC does give you the odd break.

IHT is charged at a punitive 40 per cent on assets above £325,000, but you can reduce your exposure through careful gifting.

Les Cameron, pensions expert at Prudential, said everyone can gift up to £3,000 a year with the money instantly falling out of their estate for IHT purposes: “This allowance has been frozen since the 1980s, but it can be a useful way of cutting your exposure.”

If you were to pay that money into a pension for, say, children or grandchildren,you can then double down on another tax break.

PENSION PLAN

HMRC offers tax relief on contributions to a personal pension.

This even applies where the beneficiary is not working and does not pay tax, for example, young children or a stay-at-home spouse.

In this case you can contribute up to a maximum £2,880.

Basic rate tax relief is added at 20 per cent, lifting the total to £3,600.

Assuming you gifted £2,880, which would otherwise have been liable for IHT, you would have saved 40 per cent of that, £1,152.

You have also generated £720 in pension tax relief, which has given you a total tax benefit of £1,872, on a gift of just £2,880.

Since every adult can give £3,000 IHT-free couples can generate double these savings.

JUNIOR OPTION

Money invested in a pension cannot be touched before age 55, under current rules, so young children will have to be patient to benefit.

You could invest in a Junior Isa instead, as the money is theirs from age 18, but Cameron said: “One of the attractions of investing in a pension is that children cannot touch it until much later in life, making it less likely that it will be wasted.”

BIG SAVINGS

Many people wrongly think you can only invest up to £3,600 into a pension on behalf of somebody else, but if they work you can contribute up to 100 per cent of their earnings.

So a couple could jointly gift £6,000 each year to a working relative, which becomes £7,500 if invested into a pension with tax relief.

If you did this for 10 years, it could be worth more than £97,000, assuming 5 per cent annual growth after charges.

The total tax saving would be £39,000, comprising £24,000 in IHT reduction and a further £15,000 in basic rate tax relief.

The saving would be even greater if the beneficiary pays a higher rate of income tax as you can claim a further reduction off your own tax bill.

A family talking to a man with a piece of paper in his hand.GETTY

Money invested in a pension cannot be touched before age 55, under current rules.

THE GIFT

That is not the end of the benefits.

Even if you stop investing after 10 years, money sitting in a pension will have many more years to grow.

If your child or grandchild left the money invested for a further 30 years, they would have £419,288, or after 40 years £682,879.

They could be set up for life because over such lengthy periods, compound interest growth of 5 per cent a year will really work its magic.

Not a bad return for a relatively small act of generosity.

This is the tax gift that keeps on giving.



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