Estate planning & Inheritance Tax mitigation

Estate planning is the process by which you plan during your lifetime how your affairs are to be settled upon your death. The process can provide for certainty regarding beneficiaries and the administration of probate. It can also maximise the size of the inheritance for beneficiaries by minimising any Inheritance Tax (IHT) liability. In 2014-15*, it is estimated that families paid over £3.9 billion to HMRC in Inheritance Tax rather than passing this capital on to their loved ones.

Beneficiaries and what proportion of your estate you want them to inherit should be clearly defined through the preparation of a legitimate Will. Whilst the preparation of a Will relies upon the expertise of a professional solicitor or qualified will-writer, assessing the liability for and putting in place strategies to mitigate Inheritance Tax normally requires the expertise of a financial adviser.

Gifting assets is one way of reducing your Estate, but to be effective, you normally have to live for seven years from the date of the gift. Gifts must also be made without any reservation of benefit, which can often prove difficult for families where their largest asset is their home. Certain gifts, such as the annual exemption or gifts to charity are immediately exempt from IHT. HMRC rules surrounding gifting are quite varied and it is important to keep good records.

Changes to the taxation of pension death benefits, introduced during 2015, will make pensions a key aspect of most estate planning and Inheritance Tax mitigation strategies going forward. Trusts are used extensively in IHT mitigation; they are a way of transferring assets outside of your Estate whilst still maintaining control over and potentially access back to them. Professional advice should always be sought when setting up trust arrangements.

In some cases it isn’t feasible to mitigate IHT by gifting or setting up a trust. In such cases, Life Assurance can be considered. The idea is that a Whole of Life policy is set up in trust to pay out on death so that there is enough money available to pay any IHT due.

Some business owners and investors might qualify for Business Property Relief (BPR), which provides relief from IHT on the transfer of relevant business assets at a rate of 50% or 100%.

Our independent financial advisers can help you to understand the complexities of Inheritance Tax mitigation, enabling you to pass more of your wealth to their beneficiaries.

*Source: Institute for Fiscal Studies, ‘A survey of the UK tax system.’