7 Steps for Inheritance Tax Planning

Updated: Apr 12

While the majority of us want to make sure our estate is protected for our loved ones, the threat of death duties is very much alive. In 2017/18 Inheritance Tax receipts for HMRC reached £5.2 billion*, despite the recent increase in allowances available.

Sadly there is not one solution to reduce the share of your wealth the tax man takes from your beneficiaries, there are options that can work, when done in combination.

1) Make A Will – It sounds straight forward and simple, but all planning starts with a will and in the UK only 45%** of adults have done the basic. Now, this alone will not save your estate from the tax man, so:

2) Give Your Money Away – If you give money and assets to your loved ones and live for seven years, then it is job done. How much can you give away without it effecting your lifestyle and do you trust your recipients to use the money wisely?

3) Debt – Debts are taken off the value of your estate when Inheritance Tax is calculated. Therefore, debts to a family trust, equity release or lifetime mortgages can help in tax mitigation – depending on what you do with the money!

4) Invest to Reduce & Remove Tax – To encourage investment in certain areas of the UK economy, the government allow certain investments to reduce your Inheritance Tax liability while allow full access to the capital. 2 Years in – the money is free from death duties! (as long as the investments meet legislation and HMRC approval)

5) Gifts & Allowances – HMRC allow you to make gifts free from Inheritance Tax. From £3,000 per donor (note donor – not recipient), to £5,000 gifts on your children’s wedding. Not huge, but worth considering. You can also gift from income, meeting rules and regulations, which is always worth considering if you have a surplus that is just building up additional capital.

6) Trust Planning –The correct trust can potentially allow you to keep control of your capital while removing it from your estate for tax. You can also have trusts that allow access to income and/or capital.

7) Life Assurance – This does not reduce the liability on your estate, but it does allow your beneficiaries to access the money to make the payment to HMRC. Again, the earlier you look at it, the lower the monthly investment needed!

Whatever action you have done in the past, there is always a need to review the planning. One of the above options, or a combination of a few, should provide the solution in most cases!

* Sources: HMRC and Financial Times April 2018


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