Inheritance Tax

The biggest block to inheritance tax planning is that most people do not like the thought of losing control and access of the assets they have spent a lifetime accumulating. To quote the late politician Roy Jenkins:

“Inheritance tax, is broadly speaking a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.

We understand that preserving your legacy to pass on its maximum value to your nearest and dearest is a key consideration for most individuals. However, legacy is more than just money, it is the values you leave behind, the lessons you teach and also how to live a good life. We can help you achieve this by planning to leave a financial legacy for future generations through investments which make a positive contribution to society.

Inheritance tax (IHT) is possibly the most unpopular of all taxes on individuals because people who have worked hard, accumulated wealth and paid taxes all of their lives face the prospect of their loved ones facing perhaps the heaviest tax of all upon their death. It is unsurprising that clients seek to avoid paying inheritance tax and there is a misconception that it applies only to the very wealthy, particularly as increased property prices have taken many individuals beyond the allowance thresholds in recent years. From April 2027, pensions passed on will also be subject to Inheritance Tax as announced by the Chancellor in her 2024 Autumn Budget; a significant change which will make many more estates liable to pay IHT.

The Nil Rate Band Allowance for IHT is currently £325,000 per individual. There is no inheritance tax charged upon transfers on death between married couples or civil partners so a couple can potentially benefit from £650,000 of joint exemptions. On top of the nil rate allowance, homeowners with children can benefit from the main residence nil rate allowance. This allowance is currently £175,000 per individual until April 2030 on estates worth less than £2 million. Pension death benefit rules mean there is usually no tax to pay for any recipient if the member dies before the age of 75 assuming benefits are paid out within the relevant two-year period.

Inheritance Tax is payable at 40% on all taxable assets above IHT thresholds, making Inheritance Tax potentially the largest tax demand your children or beneficiaries will ever face. There are ways of reducing or eliminating IHT including gifting directly to family members, use of inheritance tax efficient trusts, inheritance tax exempt investments such as Business Relief or provision for your children to have the means to pay the eventual IHT bill through a Whole of Life Assurance policy. In some cases, it may be beneficial for assets to be left to grandchildren, e.g., when children are middle-aged, financially independent and do not need an inheritance.

With ever increasing numbers of families falling within the scope of IHT, effective planning is more important than ever. At Best Advice Wealth Management, we have the expertise and can explore all available options with you.

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