Inheritance Tax Planning

Careful planning can legitimately reduce your IHT liability leaving your beneficiaries to inherit more of your estate

Inheritance Tax explained

Inheritance Tax (IHT) is due on all the assets such as cash, property, chattels and investments of someone who has died where the value of those assets exceeds the IHT thresholds.

It was recently announced that there will be some chnages to IHT thresholds  which will see them rise in the near future but right now, the estate of someone who dies in the 2016/17 tax year will have to pay 40% of the combined value including money in the bank, property and investments on anything above £325,000.

This threshold doubles to £650,000 for a married couple or registered civil partnership – as long as the first person to die leaves their entire estate to their partner.

Taxing money that has already been taxed

No one likes paying IHT because it is a tax that is effectively levied on income that has already been taxed but property price increases, growing affluence and new pension freedoms have brought many more people into the IHT bracket.

You don’t have to fall into the super wealthy bracket to find your estate liable to IHT due to the significant increase in house prices over the last few decades together with a significant general increase in our National wealth and standard of living.

The example below demonstrates how a typical estate can exceed the IHT threshold and give rise to a significant tax charge.

Asset Value
House £450,000
Buy To Let Property £175,000
Chattels (inc. Art, Cars, House Contents) £50,000
Cash Deposits £125,000
Investments (inc. ISA) £150,000
Total £950,000
Deduct IHT threshold for married couple  £650,000
Taxable Estate £300,000
Tax at 40% £120,000

Can I legitimately reduce the value of my estate for IHT purposes?

Yes, there are ways of mitigating an IHT liability including:

  • Make a will – to ensure your legacy benefits those you intend it to
  • Set up a trust –assets transferred to a trust can become IHT Free
  • Transfer assets – assets transferred between married couples and civil partners are IHT exempt
  • Make gifts to your beneficiaries during your lifetime
  • Invest in assets that are exempt from IHT
  • Leave some of your estate to Charity
  • Take out a Life Insurance Policy which pays out to a trust and help your family pay IHT bills

I can’t afford to give away or tie up my assets as I might need them and/or an income from them

This need not prevent you from organising your estate in an IHT efficient manner. With careful planning we are able, in many cases, to organise your assets so that they become exempt from IHT but can still provide you with an income and access to the capital if it is required later on.

IHT planning is a complex area where our highly qualified financial planners can guide you and devise a plan to ensure your estate remains as intact as possible when passed on to your heirs. Give us a call or drop us an email to find out how we can help.

The Financial Conduct Authority does not regulate taxation and trust advice

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