Inheritance Tax Planning

It is an important part of life to ensure that the correct taxes are paid. It is just as important to ensure that you do not pay tax unnecessarily.

Would you pay income tax if you didn’t have to? Probably not. So, why do so many people pay Inheritance Tax when they don’t have to?

Some people seem to think that Inheritance Tax is payable and there’s nothing they can do about it. In our experience, they are often wrong. There are many ways to make sure you do not pay more Inheritance Tax on your death than you should such as leaving your estate to certain exempt beneficiaries, leaving gifts to charities or ensuring life policies or pensions are set up in a certain way.

Everyone can currently pass up to £325,000 tax free. This is called your nil rate band. If you have made substantial lifetime gifts this can the amount available of your nil rate band on death. If you have a spouse or civil partner and you leave everything to each other on first death, then this tax-free allowance is increased to £650,000 on second death. There are various other reliefs which might be able to be claimed by your estate such as main residence relief, agricultural or business property relief. The availability of these reliefs will depend on how your assets are held, the tax rules at the date of your death and also any other competing interests you might have to consider when estate planning.

A lot of people have some sort of private pension arrangement or life insurance policy in place however, if you were to die before retirement, any death benefits or policy payouts could form part of your estate if the fund is not written into trust. It would be sensible to discuss your pension scheme or life policy with the provider to check that your pension is written into trust.

This type of gift will only be exempt from IHT if you survive it by a full 7 years. There are also rules which prevent you from continuing to live in the property. This would be classed as a gift with a reservation of benefit which HMRC will not recognise and thus the value of your property will be counted back in to the IHT calculation. We will conduct a full review of how all your assets are held and the implications of the same so you can make an informed decision and ensure that any tax planning is effective.

The current rules, laws and thresholds are always susceptible to change at any time so you should always seek legal advice when considering any of the above