Q. I am thinking of investing some money in premium bonds. Are there any tax advantages or disadvantages?

A. You won't receive interest on the money held in premium bonds but any prizes you receive from those bonds are tax free. The prize fund is calculated on the basis of a nominal interest rate of 1.3%. Thus if you hold £10,000 in premium bonds for one year, on average you should expect to win £130 as bond prizes over the year. However, that return is not guaranteed and you may win more or less. You could also win the big prize of £1million!

The premium bonds will form part of your estate for inheritance tax purposes, so will be subject to inheritance tax on your death if the value of your total estate exceeds the exempt limit of £325,000 (fixed to 2018).

Q. I plan to sign over my home to my son to avoid inheritance tax. Is there anything else I should be aware of before I do this?

A. If you continue to live in the property after you have given it to your son, the gift will not be effective for inheritance tax (IHT), so no IHT will be saved. For IHT purposes the property will be treated as belonging to you until you stop using it, so it will form part of your estate on your death and be subject to IHT. There may be a reduction in the IHT due if your son also lives in the property and pays his share of the running costs.

If you son does not live in the property there may also be capital gains tax charges when he comes to sell the property. We need to discuss this plan in detail with both of you before the gift goes ahead.

I've heard I could reduce inheritance tax by leaving money to charities in my Will. How does this work? Do I have to leave a minimum amount?

Any bequests to charities in your Will are free of inheritance tax (IHT). This means the executors of your estate will only pay IHT at 40% on the value of your estate after deducting the following:

- gifts to charities,
- gifts to your UK domiciled spouse; and
- your available nil rate threshold.

For deaths after 5 April 2012 it is proposed that the rate of IHT paid will be reduced to 36%, if at least 10% of the net estate is left to charity. Your net estate is the amount on which IHT would be charged without considering the charitable gifts. You may need to redraft your Will to ensure your estate qualifies for this tax discount.