Understanding Inheritance Tax

When managing Inheritance Tax (IHT) is a critical issue for families in the UK, particularly with rising property values and frozen thresholds. Estates worth over £325,000 are taxed at 40%, and more estates are being caught in this tax net. For the 2022-23 tax year alone, IHT brought in £7.1 billion, highlighting its growing impact.

Strategies to Reduce IHT

• Lifetime Gifting: Gifts can help reduce IHT liability, but careful planning is needed. Gifts such as £3,000 per year or wedding gifts up to £5,000 are tax-exempt. However, gifts exceeding these amounts may be subject to tax if the donor doesn’t survive for seven years. A case in point is Anne Robinson, who aimed to avoid IHT through substantial gifting. If she passes away within seven years of giving gifts, her estate would still be liable for IHT. This highlights the importance of timing and understanding the potential double taxation risks for recipients.
• Trusts: Setting up Trusts allows for greater control over how assets are distributed and used. For instance, Property Trusts help protect assets while ensuring beneficiaries receive them according to the settlor’s wishes. However, trusts must be drafted correctly, as errors—such as naming the same person as both the life tenant and the remainderman—could lead to issues with trust validity. Nil Rate Band Discretionary Trusts (NRBDTs) are another option, offering flexibility in how trustees manage estate assets and tax liability. Proper guidance is essential to ensure trustees make informed decisions based on the estate’s best interests.

Trusts for Minors: Setting up a trust for minors can be challenging, as family circumstances may change over time. Thoughtful planning ensures that trustees will be available when the minors come of age and that these trusts are future-proofed.

Why Professional Advice is Essential

Navigating IHT and estate planning can be complex. Professional advice is invaluable for families looking to minimize their IHT liabilities. By leveraging strategies like pension schemes, business reliefs, and trusts, families can ensure comprehensive estate protection.

At Complete Estate Protection, we assist families through the estate administration process and work with partners to provide effective estate planning services. With an ageing population and more estates falling within the IHT threshold, it’s crucial to start planning early to secure your family’s financial future.

Speak To An Expert

Complete Estate Protection is here to help you navigate the complexities of Inheritance Tax.

Contact us today.