Don't wait for the Chancellor to slash your inheritance tax bill - here is how you can do it yourself

Families paid £3.4billion inheritance tax in the year to April 2014

In the first ten months of this tax year, they paid £3.2billion

The Government could bring in a record haul this year

If there's one tax that is aimed squarely at Middle Britain it's inheritance tax.

In one swoop it can snatch up to 40 per cent from assets you've spent a lifetime accumulating and dreamed of passing on to your children and grandchildren.

One leading tax adviser puts it like this: 'If you're rich, it's relatively easy to avoid, and if you're poor, you don't pay it. Basically, It's the suckers in the middle who get caught.'

Bereaved families paid £3.4billion inheritance tax in the year to April 2014.

In the first ten months of this tax year, they paid £3.2billion, so the Government could bring in a record haul this year topping the £3.8billion paid in 2007/08.

The Conservatives have long trumpeted their desire to cut this tax, but it seems unlikely there will be anything to do so in today's Budget.

Concerns over the rising burden prompted the Government in October 2007 to allow married couples and legal civil partners to combine their tax-free allowances. Yet some of this tax could be avoided if families started planning earlier.

Let's start with the basic facts. There is no tax to pay on assets that pass between spouses or legal civil partners. Outside of this, everyone can give away possessions, property and money worth up to £325,000 without paying inheritance tax. This is known as the nil rate band or inheritance tax threshold.

By combining their allowances, married couples and civil partners can give away up to £650,000.

Anything above the threshold is liable to 40 per cent tax.

 Let's say a single person dies and their estate, including any property, savings and all other possessions, is worth £400,000.

The £325,000 allowance would be deducted, leaving £75,000 liable to tax at 40 per cent. That would trigger a £30,000 bill to be paid out of the estate.

So how can you avoid inheritance tax? Many people know about the annual giveaways allowed under IHT rules, which are explained below.

What you may not realise is that these rules apply only to gifts you make out of your capital — that is, those which deplete your savings.

One of the most commonly overlooked ways to avoid IHT is to make regular gifts out of income. These are not subject to IHT.

This might be handy for paying school or university fees for grandchildren, paying into a life insurance policy or just making regular gifts from a large pension or other income.

So if you're lucky enough to have an income from your pensions and savings of £40,000 and you spend £20,000 on living costs, you could give the other £20,000 away every year so long as the payments are regular and not affecting your standard of living.

GIVING AWAY CASH

You can also give away some money every tax year from your capital without worrying about inheritance tax. But the limits are meagre and have not risen since 1981.

The main one is a £3,000 annual allowance which can be given to anyone or split into smaller amounts - for example, £1,000 to each of three children.

If this allowance had kept pace with inflation, it would now be more than £10,000.

This allowance can be carried forward for one year. If you didn't give any in the 2013/14 tax year, you still have a couple of weeks to do so for this tax year.