Inheritance Tax

Last tax year, HMRC received a record £5.4 billion in Inheritance Tax (IHT) receipts which is anticipated to rise to an expected £6.3 billion by 2023.

Inheritance Tax is often described as a voluntary tax, simply because so many individuals fail to recognise that their estate is liable. Following a conversation with one of our financial advisors and with the right financial planning at the right time, this tax liability can often be fully mitigated.

Assets such as your home; any other property, savings & investments, cash, art, cars, and antiques are all subject to the tax. If you hold property overseas but are domiciled in the UK, then the tax is liable on your worldwide assets.


The first £325,000 of your estate benefits from an allowance and a separate allowance was introduced in April 2017 which will be worth an additional £175,000 towards your main residence from April 6th, 2020. There are some strict eligibility rules around the Residence Nil Rate Band so for further guidance you should seek specialist advice to ensure that you will qualify for this allowance.

The old saying “Failure to plan is planning to fail” is especially relevant when it comes to effective Inheritance Tax Planning. The provision of independent financial advice will help you to plan your affairs and ensure that the right amount of money is in the right hands at the right time.


Here are a few tips on how to plan and improve your situation:


1.  Seek independent Financial Advice. Most Advisers will provide you with a free review to establish if you have an Inheritance Tax liability. Should some intervention be required then the benefits of independent advice are that the Adviser can source a solution from any provider in the market. A lot of Tied Advisers will have great marketing but limited choice on what they can do and who they can use in terms of solutions.


2. Take advantage of the allowance you have available. Did you know that you can make an annual gift of up to £3,000 and this can be backdated one year if you did not make a gift last year? Small gifts of up to £250 can also be made however this is not available to anyone who benefited from any of the £3,000. You can also make gifts of income for any amount as long as they are not detrimental to your standard of living. It would be prudent to keep a record for HMRC of any regular gifts which you make. You can make special gifts upon marriage to your children of £5,000 and to your grandchildren an amount of £2,500. Any other gift upon marriage is limited to £1,000. These amounts can be doubled up if you are a couple making the gift.


3. The biggest fear that parents have in making large gifts of capital is what would happen if the recipient were involved in a matrimonial dispute or declared bankrupt. There are ways that money can be ringfenced so that it can only be used by your bloodline and the funds can be used in a way that you can influence even after your death. If you have surplus capital available that you want to earmark for your loved ones, then speak to an Independent Financial Adviser about Bloodline Trust planning. A Trust can ensure that the right amount of money is in the right hands at the right time and these can be set up to last over a term of up to 125 years, so you can make provision for future generations. This type of arrangement can also provide the person setting up the Trust (known as the Settlor) with access to the initial capital throughout their lifetime.


4. Pay more money into your Pension, not only will this provide a greater level of income in your retirement, but funds held within a Pension are not normally liable to Inheritance Tax. If you die before the age of 75 then your Pension Fund can be paid out to a beneficiary tax free as either a lump sum or an income. In the event that you die after the age of 75, the proceeds are liable to income tax at the beneficiaries’ marginal rate.


5. Check that any life cover policies you have are held under a suitable Trust arrangement. The Trust can usually be provided free of charge by the Life Office who provide the cover. If you are struggling to find out whether a Trust is in place contact an Independent Financial Adviser or the Life Office directly for assistance. A Trust will keep the funds separate from your estate and prevent the proceeds being liable to IHT. Should your life cover be provided by your employer in the form of Death in Service Benefits, there are options available to ensure that upon your death this is distributed for the benefit of your family. In this scenario you should seek advice from an Independent Financial Adviser who could look at the option of a Spousal Bypass Trust.


6. Review your will or make a will if you do not have one. This is the foundation for all IHT planning and it is good practice to review your will on a regular basis to ensure that your wishes are accurate and up to date. If you die without making a will then you are subject to the Laws of Intestacy which means that the Crown could benefit if you have no living relatives. Should you face an IHT liability then you may also consider making a gift to charity which could reduce the amount of IHT payable by your estate.


Making sure that your estate is in order and that those you love will be well looked after can bring peace of mind and certainty.


This guide was written by Peter Blant, an Independent Financial Advisor at Milestone Financial Planning. It is for guidance only and is not financial advice. Contact us on 01246 903 053 for a free, confidential consultation to assess your individual circumstances.