Inheritance Tax (IHT) Planning
We recognise that payment of an Inheritance Tax (IHT) liability can significantly reduce the amount of assets available to be passed to your loved ones. Taking the time to review your exposure and consider appropriate planning to reduce the IHT liability will enable you to preserve wealth for the benefit of the next generation.
How much is IHT in the UK?
After reliefs and exemptions, IHT is charged at 40%.
For example, if a couple with a joint estate valued at £5,000,000 leave everything to their children on second death, the estate will pay £1,740,000 of IHT after accounting for the available nil rate band of £325,000 for each spouse.
How can I reduce IHT?
There are multiple reliefs and exemptions available for IHT. Some reliefs relate to specific assets, such as Business Property or Agricultural Property, whilst others depend on who is receiving a share of the estate, such as spouse exemption, Residence Nil Rate Band, or charitable exemption.
When do I need to take action to reduce IHT?
Reviewing your position at least every 7 years, and particularly when your own assets change (e.g. sale of a business, you receive an inheritance) is sensible. You will then have the information to make informed decisions about actions you can take to reduce the IHT exposure.
How we conduct a Wealth and Succession review
We work closely with you and your family to understand your objectives and priorities, so we can recommend appropriate solutions that are tailored to your circumstances.
Following a meeting to better understand your assets, we will:
Review whether your assets qualify for valuable reliefs such as Business Property Relief (BPR) and Agricultural Property Relief (APR).
Maximise the benefit of IHT exemptions, including the Nil Rate Band (NRB), Residence Nil Rate Band (RNRB) and spouse exemption.
Review the tax efficiency of your existing Wills and suggest suitable amendments.
Consider the benefit and appropriateness of lifetime giving and how the IHT position interacts with Capital Gains Tax (CGT) on gifts.
Consider appropriate structures, such as trusts or family investment companies, as vehicles to pass value to the next generation.
Advise on the use of life insurance to cover a potential exposure to IHT.
We work collaboratively with your legal and financial advisers to ensure recommended actions are implemented, and any practical hurdles are overcome. If you don’t have an existing legal or financial adviser, we can put you in touch with several firms who we think would best suit your needs. If you would like to have a discussion about the benefits of a Wealth and Succession Review, please get in touch.
For non-UK domiciled individuals the settlement of a trust before becoming deemed domiciled can be particularly valuable. In addition, if two spouses have different domicile statuses, this may significantly increase the exposure to IHT. With the right advice, we can make this work to your advantage.