IHT Planning

The amount of Inheritance Tax (IHT) paid depends on the value of the estate at the date of death, and also on who is to benefit from the estate.

Each individual has the benefit of an IHT nil rate band. If the estate at date of death, together with any gifts made in the seven years before death, is under this value, no IHT will be payable. The nil rate band is currently £325,000; however, this is periodically reviewed by the Government..

However, if one person in a married couple or civil partnership leaves their entire estate to the survivor, the survivor can benefit from two nil rate bands (£650,000) before IHT is payable.

In addition to the nil rate band, many homeowners will be able to benefit from the residence nil rate band. This is currently £125,000, increasing to £175,000 by 2020/21, and applies where a home is left to descendants of the deceased. Like the nil rate band, any unused portion is transferable between spouses and civil partners. The rules in connection with the residence nil rate band are complicated, however, and it will not be available to all.  Forward planning and good advice is important.

The standard rate of IHT is 40%; however, a reduced rate of 36% can be payable if a proportion of the deceased’s estate (more than 10%) is left to charity.

The prospect of your estate paying a significant IHT liability on your death can be overwhelming and it can have a significant impact on the estate left for your chosen beneficiaries. Seeking early advice and guidance about the options to mitigate your liability is a sensible move, and there are lots of different options to be considered depending on your individual financial and personal circumstances and preferences.

There are some simple IHT exemptions that an individual can use to minimise their estate including the use of the annual exemption and small gift exemption to make gifts to family and beneficiaries.

Gifts to charity are also exempt from IHT, allowing an individual to support their favourite charity and at the same time reduce their taxable estate.

It is never too early to take professional advice to prepare a strategic plan to use the tools available to reduce your potential IHT liability. You should always take advice before making substantial gifts to a third party, setting up a trust or investing in any financial products or business.

In some circumstances, it may be appropriate for you to amend your Will to include flexible tax planning options for your Executors to use on your death.

For other individuals, it may be appropriate to invest in IHT friendly investments or assets, or even set up a trust during their lifetime to remove assets from their estate.

There is no one size fits all when it comes to IHT planning and it is often the case that a number of tax planning tools will need to be used.

If you are concerned that the value of your estate means that you will have to pay Inheritance Tax (IHT) , or you already know that you have an IHT issue and wish to address it, please ask us about our IHT Review service. Being proactive about IHT planning should mean that you can pass on a greater share of your wealth to your loved ones.

The purpose of the Review is firstly to identify your current IHT exposure, and secondly, to look at how you might reduce this exposure or otherwise plan for it.

As part of the Review, we will meet with you to gather details of your assets and their current values, and any debts or liabilities you have. We will also review your Will as the way in which it is structured can have a significant impact on the tax which is payable.

This information will allow us to produce a written report which includes a calculation of your current IHT liability, and our recommendations as to how you might reduce it. For example, suggestions may include making better use of exemptions and reliefs, having a more tax-efficient Will, making gifts to family or charity, or taking out life assurance. 

We will discuss the report with you and will be happy to provide further advice on any planning steps which interest you. We can also help you with implementing these steps – making the whole process as easy as possible for you.