Without effective planning, inheritance tax (IHT) can amount to large sums of money, so it is only prudent that you should take steps to mitigate the liability of your estate. IHT planning can allow you to provide for dependents and future generations and can give you an element of control over how your heirs use their inheritance. There are several ways to reduce the amount of IHT payable from your estate, but each method takes strategic planning and input from a team that understands the technicalities of this area of law.
In this post, we look at six key ways you can reduce the amount of IHT due from your estate. Our lawyers are specialists in IHT planning and can provide bespoke advice and practical solutions for your specific wishes and assets. If you would like to discuss your circumstances with us, please do not hesitate to get in touch.
1. Make your Will early
Research carried out in 2017 showed that more than half of UK adults did not have a Will. No one likes to think about what will happen when they pass away but avoiding making a Will can have consequences for those you leave behind.
Making a Will [/LINK] can help you reduce the amount of IHT due on your estate in a number of ways. For example, IHT rules allow you to leave your wealth to your spouse or civil partner and take advantage of a total IHT exemption. Further, if your estate qualifies for the residence nil rate band (RNRB) this could mean you are entitled to a higher tax-free threshold. To be eligible for the RNRB you must leave your property, or your share of it, to your direct descendants.
Ensuring you have a properly drafted Will in place will give you the time to plan properly for IHT and take advantage of opportunities to mitigate the tax that applies.
2. Take advantage of available reliefs and exemptions
The most straightforward way to reduce your IHT liability is to make the most of exemptions and reliefs available for your circumstances. Our Estate Planning Lawyers will look at your assets and the potential reliefs and exemptions available to you. Examples include:
- Sums left to charity
- Normal expenditure out of income
- Lifetime gifts
We have many years of experience helping clients plan effectively for the future. Tax rules are always changing, so we stay ahead of the game to ensure your affairs remain as tax efficient as possible.
3. Make lifetime gifts
When you make a lifetime gift to an individual, it is potentially exempt from IHT. The donation will fall outside of your estate for IHT purposes where you survive for seven years after making the gift. This ties in with our first tip about the importance of starting to plan for IHT early, as this will give you the most considerable amount of time to make lifetime gifts.
If you pass away before seven years has passed, IHT will be due on the gift. However, where you have survived the gift by more than three years, the rate of IHT due will fall by 20 per cent each year.
4. Consider using assorted types of trusts
When structured correctly, assets placed in trust will not be subject to IHT. Trusts are a highly complex area of law, so it is important to work with a legal team that has experience and fully understands the use their use. Many people also choose to use trusts as they can provide an element of control over how subsequent generations use the assets held in the trust.
Certain types of trust can incur additional IHT charges, but we can advise you fully on the most effective trust planning methods for your circumstances.
5. Understand the impact of moving away from the UK
If you are considering moving from the UK, either to avoid a large tax bill or for other reasons, it is important that you seek legal advice. Moving from the UK does not automatically mean your estate will be exempt from UK IHT. Your estate may still be liable to pay IHT in the UK up to four years after moving away, and tax will still be due on any UK assets even if you were not domiciled there when you pass away.
6. Take out insurance
If paying IHT is unavoidable, it is possible to take out an insurance policy to help you pay the bill when it falls due. You can do this if you are a UK resident or where you are not domiciled in the UK but may have UK IHT liabilities.
Such insurance policies can be tailored to provide control over how heirs use their inherited wealth but without additional IHT. The policy may also be combined with a specific type of trust to pay an ‘income for life’. In this situation, the remainder of the estate can pass to the next generation and would fall outside of the IHT liability of the estate.
Insurance may be a good option for those looking to move overseas, as it is more widely recognised than trust planning.
Contact Our Specialist Inheritance Tax Planning Lawyers, London
Our Estate Planning Solicitors have the knowledge and experience to deal with any size of estate. We provide a comprehensive estate planning service, so in addition to advice on effective IHT planning, we also support clients with Writing Wills, Probate and Administration of Estates, Contested Wills and Probate, Power of Attorney and Living Wills.
We understand the sensitive nature of your personal affairs, and so will always treat our discussions with discretion and professionalism. If you would like further information on any of the issues covered in this blog, please do not hesitate to get in touch. Call us today on 020 7387 2032 or complete our online enquiry form, and we will get back to you without delay.
