Inheritance Tax (IHT) is the tax paid on assets left when someone dies after any allowances or exemptions are applied.
IHT and estate planning involve creating a plan as to how to pass your assets on to your intended beneficiaries in the most tax-efficient manner whilst still maintaining control if desirable.
There is no magic wand for waving away inheritance tax, and generally speaking the earlier the start the more options there are available to you to ensure that you pass on maximum wealth to your intended beneficiaries.
IHT is no longer a tax for the very wealthy and many people will find themselves with an IHT liability on death. Broadly speaking, if your estate (the combined value of your assets) is worth over £500k for a single person, or over £1m for a married couple then you will have an IHT liability unless you do something about it. The sooner you start to think about IHT the more options there will be available to you.
When we advise on IHT, the first thing we will do is confirm your current exposure, taking into account any reliefs available.
We can then provide initial thoughts on the types of things you might want to consider which will help you achieve your objectives. Once you have considered your options we can discuss and advise upon a specific approach for you working closely with lawyers to ensure that your will and any other legal documents correctly reflect your wishes.
Estate planning often comes hand in hand with IHT planning but the focus here tends to be on asset protection. Good estate planning means that you can be sure that only those that you want to benefit from your estate will do so.
For example, you may be concerned about your children getting divorced and their spouse inheriting your assets or creditors of your business inheriting them. We work closely with lawyers on estate planning matters to ensure that your will correctly reflects your wishes.
We were approached by our client who’s father had passed away. He made a substantial lifetime gift to his daughter to assist in purchasing a property.
The father was living in the property rent free, so a benefit might have been retained from the gift. This could have potential costly IHT implications or a hefty income tax charge by falling foul of anti-avoidance legislation.
We researched to establish whether the gift fell within the ‘Gift With Reservation of Benefit’ legislation or the ‘Pre-owned asset’ rules.
It was determined that the transaction fell within the ‘Pre-owned asset’ rule
This provided clarity to our client that no reporting was required in respect of the transaction and IHT or income tax was not payable.
For further piece of mind, we recommended the client obtain an external valuation of the rental value.
We were approached by a client who was reaching her mid-70s and was considering how to tax-efficiently pass on her wealth to her family.
To do this, she needed to consider what her current exposure to Inheritance Tax (IHT) was, to then understand how much of her wealth could be passed on.
She then wanted to consider what planning opportunities were available to reduce that exposure and prevent her estate from growing further, before her death.
We gathered all the relevant background to understand her circumstances and what structures would be suitable for her to achieve her objectives.
We provided calculations of her current exposure to IHT.
We then provided recommendations based on her circumstances to reduce that exposure, including opportunities for making lifetime gifts, making strategic investments, will planning, trusts and the potential to set up a family investment company (FIC).
This included considerations of any beneficial exemptions and reliefs available to her.
Due to our expertise we produced a bespoke advisory report on the opportunities available to her to reduce her potential IHT bill. If she were to implement the planning to its fullest potential, her IHT bill would be reduced from approx. £1,300,000 to £300,000, a tax saving of £1,000,000.
This ultimately would provide more of her estate left over for distribution to her family.
The advice gave her clarity on the actions she needed to take and the timings of those actions in order to implement the planning effectively.
The earlier, the better. Starting early gives you more options to reduce your tax liability and protect your assets. Even if you’re not sure where to begin, we can help you understand your current exposure and plan from there.
Not anymore. If your estate is worth more than £325,000 as a single person or over £650,000 as a married couple (not including any IHT relief for your main residence), you could face an IHT bill unless you take steps to reduce it. We can help you assess your situation and explore your options.
Inheritance tax planning focuses on reducing your tax liability. Estate planning ensures your assets go to the right people, offering protection in cases like divorce or bankruptcy. They often go hand in hand, and we can help with both.
Trusts allow you to pass on assets while maintaining some control. They can protect your wealth, manage how it’s distributed, and reduce tax exposure. We can advise on setting up and managing trusts in the UK and offshore.
Yes, making gifts during your lifetime can affect the amount of IHT your estate pays when you die. We can also assess lifetime gifts to advise you on whether they fall under rules like the ‘Gift With Reservation of Benefit’ or ‘Pre-Owned Asset’ rules. We ensure that you understand any reporting obligations or exemptions that apply.
