Inheritance Tax Planning

There is no one size fits all solution for IHT planning.  As with all planning, it is first vital to understand the outcome of doing nothing.  Some clients have a nonchalant view about IHT and don’t see it as their problem; others see it differently and resent their wealth being taxed even further when they are gone.  As with any well laid plan, it is also vital to allow enough room to adapt should a situation change.

There are a huge number of options available when looking to mitigate IHT, four possible basic strategies are outlined below:

1. GIFTING – small gifts can be exempt immediately, larger gifts can be exempt after 7yrs.

2. INVESTMENT – in an asset or trust structure that will provide exemption or relief after a given timeframe.

3. EQUITY RELEASE – often the main residence pushes individuals above the nil-rate band; by selling or creating debt against the property, this in turn can reduce the taxable estate.

4. INSURANCE – calculate the estimated tax due on death and then use a life policy written into a suitable trust to create a lump sum for the beneficiaries to draw on to settle the bill

All approaches have their advantages and drawbacks. Based on an individual’s circumstances, we would design a bespoke plan that would typically involve a sensible mixture of strategies.  The appropriate solution or solutions will be based on personal circumstances such as age, health, marital status, whether there are children or grandchildren, current wealth, liquidity requirements and the potential for future income, capital and expenditure.

Inheritance Tax is an emotive issue for many people; care needs to be taken to ensure that an individual does not become impoverished just to avoid tax that may be due in a week or twenty years’ time.  It is vital to seek suitable independent financial and legal advice before deciding on any given strategy.