Inheritance Tax planning

Inheritance Tax (IHT) is sometimes quoted as the ‘tax of choice’, broadly meaning that with the right planning, it may be avoidable.  That said, it is potentially more difficult with larger estates than smaller ones.

The present threshold (the amount of legacy you can leave, which is not taxed) is £325,000 for each person.  A married couple may therefore leave £650,000 and potentially avoid tax.  Many of my clients have tried avoiding this tax (on advice in some instances by legal professionals) by giving their main asset away –  their home.  This has potential implications, if let’s say, they gift the home to their child, who subsequently becomes bankrupt, or has their assets looked at when calculating a divorce settlement.

The government have also ‘frozen’ the IHT threshold at £325,000 until 2014/15 tax year, which does not help IHT planning, if other assets such as investments and property rise in value during this time, which will compound the problem.

Here are some possible tips for planning Inheritance Tax solutions:

  1. Make gifts each year.  So long as the gifts that you make are from ‘income’, and do not affect your standard of living (and meet HMRC’s criteria), then this is quite acceptable.  (Making gifts will in the very least ensure your estate is rising in value a little slower). If you have a large pension income, you may wish to start being quite generous to your children!
  2. Use annual exemptions – each person can make a gift of £3000 from capital each year (that’s £6000 for a married couple).  On top of this, there are also gifts available in consideration of marriage and ad-hoc gifts of up to £250 to other people.  Gifts to charities are also usually exempt.
  3. Use trusts.  Trusts give you the opportunity to move money out of your estate and allow you to retain an element of control.  Any money gifted to some trusts may still remain in your estate for a number of years, but the future growth could be outside of the estate. They are an alternative to making an outright gift.  There are several solutions available – some allow you to take income and others do not.  Good advice on this subject should be sought from a professional adviser.
  4. ‘Die tidily’ – make sure your will is up to date.   This should also ensure that intestacy rules do not come into effect, and any the Will can compliment the other plans you have to mitigate IHT.
  5. Identify if any assets are exempt.  It could be that the accumulated wealth is from a business, which may be exempt from IHT.  The sale of the business may create cash, which would then be taxed at 40% if above the threshold.  However, the business assets on death may be exempt from IHT.  Again, a professional adviser may look at your unique circumstances and provide advice.
The bottom line is that with the right planning, IHT could be the ‘tax of choice’.  If no plans are made, then a large chunk of an estate could be taken away in the form of Inheritance Tax.  
Jeremy is an Independent Financial Adviser and holds the Chartered Insurance Institute’s Advance Paper AF1 – Personal Tax and Trust Planning.  For advice, please call 01554 770022.

The information provided on is for general information purposes only. It is not, and should not be construed as, financial or other professional advice. We recommend you that you do not solely rely on the information you find here as it is not detailed or comprehensive enough to enable you to make an informed decision without speaking to an independent financial adviser. Jeremy strongly recommends you speak to an independent financial advisor before taking out any products or implementing changes to your finances.

To find an Independent Financial Adviser (IFA) near you, try

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