Along with capital gains tax, inheritance tax (IHT) is often referred to as a voluntary tax. With careful planning, it might be possible to mitigate this tax cost.
When advising you in this respect, we shall also fully explain to you the potential implications of such planning on your access to income and capital during your later years. You will clearly have to consider other practical and family dynamic aspects of possible future changes to your finances and/or business.
Before commencing any detailed IHT review or planning, it is important to determine what your overall IHT strategy is, which will usually fall into one of the following seven tax strategies:
1. Do Nothing and Don’t Worry
Maintain wealth in the form most convenient to you and do not worry about the IHT that your estate will have to pay.
No Inheritance Tax
2. Give everything away and/or spend it
Spend and/or give everything away (except perhaps the IHT nil rate band(s)) and hope to survive for 7 years. This may well incur a short term CGT tax cost (at a lower rate, on just the gain), instead of a longer term IHT tax cost (at a higher rate, on the whole value).
Moving offshore can sometimes be effective in reducing exposure to UK IHT.
4. IHT Schemes
For those that understand the risks and can accept a level of uncertainty, there are various marketed structures that purport to reduce your IHT exposure. We do not sell or advise on these.
5. Insure IHT Liability
Maintain life insurance to fund the expected IHT liability.
6. Balanced Approach
Re-structuring of your affairs (and your spouse’s), your Wills and plans to:
- Calculate expected IHT liability and ring fence (preferably liquid) assets, or life assurance policies, to eventually settle it,
- Delay payment of any IHT due – until second death
- Retaining sufficient rainy day cash for potential future ‘unforeseens’ eg care home fees.
- Get married (or civil partnership),
- Maximise eligibility to BPR and APR IHT reliefs (sometimes by use of life time trusts, family investment companies or switching investments holdings from full stock market quoted equities to AIM equities),
- Gifting assets that do not produce income and are not pregnant with a ‘paper’ capital gains to the next generation and hope to survive 7 years (PET taper relief entitlement commences after 3 years).
- Gifting assets that are pregnant with a ‘paper’ capital gains to the next generation, hope to survive 7 years (PET taper relief entitlement commences after 3 years) and pay the CGT now instead of IHT later.
- Establish a pattern of making regular gifts out of surplus income (say for grand children’s education).
- Other 11th hour restructuring.
7. Keep it Simple
Focus on making your affairs as simple for your Executor to sort out as possible. This should enable legacies to be distributed quickly to those named in your Will.
The most popular inheritance tax service we offer is valuing your current estate:
We will then review the intestacy rules and your current Will, then calculate your current inheritance tax exposure. We shall then discuss your options for restructuring your affairs and rewriting your Will, to reduce this tax.
Most people consider inheritance tax as an unwelcome reduction in the inheritance passed on to the next generation. As well as seeking to reduce this tax, our tax technicians will prepare all of the necessary paperwork and communicate with your Solicitor, so that you have peace of mind that your final tax affairs will be dealt with in a professional manner that you have come to expect. We can also, if you wish, act as an Executor in your Will, to give you the peace of mind that someone who you trust and who understands your affairs, will apply for probate and administer your Estate in the manner instructed.