Inheritance Tax Planning

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Our Retirement and Investment advice is by referral to an adviser within Rosemount Financial Solutions (IFA) Ltd.

Estate planning is not regulated by the Financial Conduct Authority.

Did you know that more and more people are becoming liable to Inheritance Tax (IHT), yet it can be a mitigated tax. Even with the effective doubling of the IHT threshold for married couples (and civil partnerships) many people are still being caught by this tax.

Inheritance tax (IHT) is no longer a concern just for the wealthy. It is a growing worry for many people, especially homeowners who have benefited from growth in the value of their properties. Property is not the only asset that makes up a person’s estate. Your estate also includes: your contents and possessions, your savings and investments, your pension fund and any life insurance not in trust.

Over the years, the IHT thresholds have, in real terms, stealthily fallen. The threshold (nil rate band) has not kept pace with property inflation and as such, more and more people are falling into the trap of paying inheritance tax. IHT is payable at a flat rate of 40% on assets above the nil rate band. Unlike many other taxes though, there are plenty of things you can do now to make sure you pass as much of your wealth on to your family and friends, and not the taxman.

Make a Will

The first thing to do is to see a professional will writer or solicitor to make a will. There is no IHT payable between spouses, so if a partner dies and leaves his or her estate in full to the spouse, there is no tax to pay. It is the children who typically pay the inheritance tax liability after the death of both parents.

Will writing is not regulated by the Financial Conduct Authority.

Specialised Trusts

Another means by which IHT can be minimised is the setting up of specialised trusts. These are legal documents that should always be drawn up by experts, usually barristers. Always consult a member of the Society of Trust and Estate Practitioners.

Two in every three trust deeds written are used to reduce liabilities to Inheritance Tax. Many more are used to prevent children from getting their hands on money until a predetermined age which, depending on the type of trust, can be 18, 21 or 25 - or sometimes until a named individual decides they are capable of dealing with it sensibly.

If the aim is tax-saving, it’s important to understand that, once assets have been placed in trust, your access to the money will be affected, so you will need to think carefully about what you can safely afford to give away. There are typically four types of trust in popular use at the present time: Interest in Possession; Life Interest; Discretionary; and Accumulation & Maintenance. Each type of trust does a different job and each comes with its own sets of pros and cons. The utilisation of trusts is the best way to minimise your exposure to IHT and if this has piqued your interest, your next step is to consult the legal profession.

Trusts are not regulated by the Financial Conduct Authority.

Gifting money away and lifetime allowances

Wills are not the only weapon in the battle to minimise IHT bills. You can, for instance, simply give away as much as possible while you’re still alive. This is known as a “Potentially-Exempt Transfer”, or PET. Anything you give away is IHT-free, as long as you manage to survive for more than seven years after handing it over. If you die within seven years, the recipients will still be taxed, but on a sliding scale. If you die within three years, they have to pay the full 40 per cent of anything above the Nil-Rate Band. If, however, you die after three years, the tax reduces. When gifting money away, it may be useful to use BONDS as an investment vehicle, and put the bond in trust.

Main Exemptions

  1. Most transfers between spouses.
  2. The first £3,000 of lifetime transfers in any tax year (husband and wife each have own exemption) plus any unused balance from previous year.
  3. Gifts of up to but not exceeding £250 p.a. to any number of persons.
  4. Gifts in consideration of marriage to bride and/or groom of: up to £5,000 by a parent, up to £2,500 by a grandparent, or up to £1,000 by any other person.
  5. Gifts made out of income that form part of normal expenditure and do not reduce the standard of living.
  6. Gifts to charities, whether made during lifetime or on death.


Whole of life policies

Using a life insurance policy with no end term such as a whole of life (WOL) policy can be very useful in mitigating inheritance tax. The policy can be written in a single name if a widow or the applicant is single, or joint names if the applicants are married. If married a couple would apply for a joint life second death policy, so that only on the second death would the policy pay out to the beneficiaries. The amount of cover selected would be set at the outset as the IHT liability, and it should be reviewed once per annum. A WOL policy can be set up on standard cover or maximum cover. The premium will vary depending on the options taken. To decide which type is suitable, please contact us for additional information.

Don’t pay more tax than necessary on your death. Call us today to put the right combination of policies in place for you in order to mitigate as much tax as possible.

For additional information please call:

T S Gill

Mortgage Adviser

Sunrise Capital Consultants

0208 518 1124


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