Author: Gary King
Chartered Financial Planner
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Published: August 2023
Some say there are only two certainties in life, death and taxes. Whilst this may be true, steps can be taken to reduce the impact of the latter or even, in some circumstances, remove that impact entirely.
Inheritance Tax (IHT) is a tax of up to 40% and is a growing source of revenue for the UK government. IHT allowances have remained static for many years and, particularly with increasing property prices, more individuals are finding that their beneficiaries are ending up with an Inheritance Tax bill to pay.
Estate planning can be used to mitigate Inheritance Tax, however, it can go a step further and be used to provide protection over assets and a clear direction for the estate, ensuring your wishes can be met with greater accuracy.
The Inheritance Tax allowances, known as the Nil Rate Bands, total up to £500,000 per individual, with married couples able to make use of these allowances jointly. Any assets above the £500,000 (or potentially £1M) could then be subject to Inheritance Tax, with 40% of this excess landing in the Chancellor’s pockets.
Protecting your estate
There are several tools which can be used to mitigate the impact of Inheritance Tax, some of which will be more familiar to most than others. A Chartered Financial Planner will be able to guide you to the most appropriate option, which could include:
- Making use of Trusts. These can grant control over the assets to a trusted individual whilst potentially limiting beneficiary access – which can be key, particularly for minors.
- Outright gifting. Whilst control is lost, it allows you to witness the enjoyment of the funds.
- Business Relief (BR) investments. BR offers the opportunity to retain complete control over the assets whilst also benefitting from, potentially, 100% relief from IHT.
- A life assurance policy that aims to provide a tax-free sum to offset the tax.
In addition, for many years pensions have been one of the most widely used methods of estate planning. Pensions fall outside of the purview of Inheritance Tax and could offer tax benefits post death. The future of pension taxation, including the benefits on death, is the subject of heated debate in government following the Chancellor’s March budget announcements.
Whether you are aiming to reduce your Inheritance Tax liability or protect your beneficiaries, the most important parts of estate planning are:
- taking the time to assess your own needs and goals,
- obtaining professional advice and
- planning early.
If you are looking for Inheritance Tax planning advice, please speak to a member of our financial planning team on 01223 233331 or email info@mmwealth.co.uk.
Disclaimer
Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.
The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.
The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.
The Financial Conduct Authority do not regulate tax planning.
