Five ways to reduce a future inheritance tax bill
Inheritance Tax is often described as avoidable, because with planning much of it can be reduced. Here are five sensible places to start.
Of all the taxes you will meet, Inheritance Tax is among the most avoidable. With time and good advice, families can pass on far more of what they have built. Here are five places to start.
1. Use every allowance you are due
Everyone has a nil-rate band, an amount that passes free of Inheritance Tax, and many estates also qualify for a residence nil-rate band where the family home passes to children or grandchildren. Married couples and civil partners can pass unused allowances to each other. Making sure your estate captures every band available is often the single biggest step, and it costs nothing.
2. Make gifts, and make them early
You can give a set amount away each year that leaves your estate straight away, and larger gifts usually fall outside your estate once you have survived them by seven years. The sooner gifts are made and properly recorded, the more effective they are. The skill is giving without affecting your own security, which is what good planning protects.
3. Consider trusts where they fit
Putting some cash, investments or property into a trust can take it out of your estate for Inheritance Tax, while letting you keep a degree of control. Trusts are not for everyone and the rules are detailed, so they should always be arranged alongside a solicitor.
4. Cover what remains with life insurance
Where a bill will remain however much you plan, a life policy written in trust can provide the money to pay it. Because it is in trust, the payout normally falls outside your estate and reaches your family quickly, so they are not forced to sell the family home to settle a tax demand.
5. Keep your plans and your Will up to date
Allowances change and families grow. A plan that was right five years ago can drift out of date, and pension nominations in particular are often forgotten. A regular review keeps everything in line with your wishes and the current rules.
Inheritance Tax planning rewards those who start early. If you would like to understand your own position, we would be glad to help, working alongside your solicitor and accountant.
This article is for general information and does not constitute personal financial advice. The right course of action depends on your individual circumstances. For advice tailored to you, please get in touch.