Inheritance Tax
Along with Capital Gains Tax, Inheritance Tax (IHT) is often referred to as a ‘voluntary’ tax. With careful planning, it is often possible to mitigate this tax.
Current IHT Calculation
The most popular IHT service we offer is valuing your current estate, based on the below fact find information:
We will then review the intestacy rules and/or your current Will, then calculate your current IHT exposure. Even if you go no further with IHT planning, there is value in knowing what this “number” is and making plans for how this tax will be funded (eg by your Executors selling the family home).
Determine Your IHT Strategy
Before commencing any detailed IHT planning, it is important to determine what your overall IHT strategy is, which will usually fall into one of the following 7 classes:
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.
2. No More Tax – 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). This way your estate/heirs will suffer minimised further tax.
3. Emigrate
Moving offshore can sometimes be effective in reducing exposure to UK IHT, although the changes announced from April 2025 are likely to mean that you remain liable to UK IHT for up to 10 years after you leave.
4. Purchase an IHT Tax Scheme
For those that understand the risks and can accept that level of uncertainty, there are various marketed structures that purport to reduce your IHT exposure. We do not sell these.
5. Insure IHT Liability
Take out or maintain life insurance to fund the expected IHT liability.
6. 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 and make the probate process uncomplicated.
7. A Balanced Approach
Re-structuring of your affairs (and your spouse’s), your Wills and plans to:
Minimise IHT exposure, eg:
-
- Get married (or civil partnership),
- Maximise eligibility to BPR and APR IHT reliefs. Perhaps by the 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 (eg surplus cash) 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 gain (eg rental property) to the next generation, hope to survive 7 years (PET taper relief entitlement commences after 3 years) and pay the (lower) CGT now instead of the (higher) IHT later.
- Even if a 7 year life expectancy is unlikely, consider making gifts to reduce joint estate value below £2m, so that entitlement to Residence Nil Rate Band is obtained.
- Establish a pattern of making regular gifts out of surplus income (say for grand children’s education).
- Use surplus income to maximise pension contributions.
- Other 11th hour restructuring.
Optimise IHT Administration, eg:
-
- Calculate expected IHT liability and ring fence (preferably liquid) assets (eg main residence), or life assurance policies, to eventually settle it,
- Retaining sufficient rainy day cash for potential future ‘unforeseens’ eg care home fees.
- Write 1st death/2nd death mirror Wills, gifting all assets to spouse on first death, to delay payment of any IHT due until the second death
- Simplify your affairs where practical.
- Consider appointing one of our trusted partners, who already understands your business and financial affairs, as your Executor. We can then undertake applying for probate and administering the distribution of your estate.
Once we understand your preferred strategy, we shall then discuss your options for restructuring your affairs and rewriting your Will, to reduce this tax.
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.
Most people consider IHT 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. One of our partners 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 already understands your affairs, will apply for probate and administer your Estate in the manner instructed.
Get In Touch
Contact your local office to speak to one of our Inheritance Tax Team and discover how we can help you today! Don’t forget that we also offer a free initial consultation.