Key considerations for estate and inheritance tax planning


1st April 2021

Believe it or not, everybody has an estate, which includes everything you own. If your estate is large enough, Inheritance Tax may become payable. It is therefore a very good idea to consider planning for the future, to ensure that you protect your wealth, minimise any potential Inheritance Tax liability and ensure that the people you love benefit the most. This isn't something to put off for a rainy day. The Inheritance Tax rules can be very complex and Inheritance Tax itself can be very expensive. That is why it is important to plan in advance. 

What is inheritance tax?

Inheritance Tax is a tax on the estate of someone that has died and is payable on worldwide assets including property, possessions and money. It can also be charged on other things like lifetime gifts and Trusts. Generally, Inheritance Tax is charged at a rate of 40% after the deductions of allowances and reliefs.

What allowances, reliefs and exemptions are available?

The good news is that with careful planning, there are ways to mitigate any potential Inheritance Tax liability both during your lifetime and once you have died.

Each individual has a “nil rate band” available to them. This is currently £325,000 and means that the first £325,000 of their estate will be not be subject to Inheritance Tax. Additionally, there are other allowances, exemptions and reliefs available, including ones which relate to the ownership of property, whether or not you are married, own a business or a farm, make gifts during your lifetime or leave gifts to charities in your Will, which can be useful tools to reduce any Inheritance Tax liability.

Careful planning, including the making of a Will, to effectively utilise these allowances, reliefs and exemptions, can be a really useful and effective way to mitigate your Inheritance Tax liability.

Are there any pitfalls?

As mentioned above, the Inheritance Tax rules are very complicated and it can be easy to fall foul of them. There are a number of anti-avoidance measures in place which mainly focus on lifetime gifting and which mean that assets that you did not intend to include in your estate for Inheritance Tax purposes, are brought back in by HMRC and Inheritance Tax levied. It is therefore very important to take legal advice if considering making any lifetime gifts or taking steps which will affect the size of your overall estate.

What is estate planning?

Simply, this is taking steps to ensure that your affairs are in order both during your lifetime and also, once you die. Estate planning can include:

  • Preparing Lasting Powers of Attorney to appoint trusted people to make decisions about your property and financial affairs and your health and welfare in the event that you lose the ability to make decisions for yourself;
  • Preparing Lasting Powers of Attorney to appoint trusted people to manage your business if you are no longer able to do so yourself;
  • Putting a valid Will in place to ensure that you pass your estate onto those you love most and to maximise the ability to mitigate Inheritance Tax;
  • The setting up of Trusts to protect your assets and guarantee that your loved ones have financial stability for the future. Trusts can also be a very useful tool to mitigate Inheritance Tax and ensure that assets are passed on in a very tax efficient way.
  • The passing on of assets during your lifetime.

How can we help?

Estate and Inheritance Tax planning can be complex, especially as the legislation is updated and regularly. It is therefore important to plan early and review on a regular basis. This type of planning isn’t a case of one size fits all and so our advice would be tailored to your individual needs and wants, which should give you peace of mind that your wealth is being protected and will be safely passed on to future generations as per your wishes.

If you need advice on any of the above

Speak to a member of our Private Client Law team

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