Inheritance Tax

Along with Capital Gains Tax, Inheritance Tax (IHT) is often referred to as a ‘voluntary’ tax. With careful planning, it is may be possible to mitigate this tax.

Inheritance Tax – A Useful Summary

Current IHT Calculation

The most popular IHT service we offer is valuing your current estate, based on the below fact find information:

• IHT Fact Find Questionnaire

We will then review the intestacy rules and/or your current Will and calculate your current IHT ‘exposure’.

Decide upon and follow an IHT Strategy

The strategy you follow next is then up to you – if you are reading this article, it will not be ‘1.  Bury your head in the sand’:

2. Decide how your estate will fund paying the IHT

Maintain wealth in the form most convenient to you and do not worry about the IHT that your estate will have to pay (your heirs will get to retain the after tax wealth). Perhaps, once you know your IHT exposure, you might ring-fence some wealth (eg selling the family home) to eventually fund this tax.

3. No More Tax – Give Everything Away and/or Spend it

Spend and/or give everything away (except perhaps the IHT nil rate band(s)) and hope to survive for 7 years. This may well incur a short term CGT tax cost (at a lower rate, on just the gain), instead of a longer term IHT tax cost (at a higher rate, on the whole value). This way your estate/heirs will suffer minimised further tax.

4. Emigrate

Moving offshore can sometimes be effective in reducing exposure to UK IHT, although the changes announced from April 2025 are likely to mean that you remain liable to UK IHT for up to 10 years after you leave.

5. Purchase an IHT Tax Scheme

For those that understand the risks and can accept that level of uncertainty, there are various marketed structures that purport to reduce your IHT exposure. We do not sell these.

6. Insure IHT Liability

Take out or maintain life insurance to fund the expected IHT liability.

7. Keep it Simple

Focus on making your affairs as simple for your Executor to sort out as possible. This should enable assets to be easily converted to cash, legacies to be distributed quickly to those named in your Will and make the probate process uncomplicated.

8. A Balanced Approach

Re-structuring of your affairs and Will (and your spouse’s), where practical, to:

Minimise IHT exposure, e.g.:

• • Spend more,
  • Get married (or civil partnership),
  • Maximise eligibility to BPR and APR IHT reliefs. Perhaps by the use of life time trusts, family investment companies or spreading business ownership around more family members,
  • Spread shareholdings around the family so as to take advantage of how the minority interest rules reduce share values,
  •  Gifting:
    • Assets that do not produce income and are not pregnant with a ‘paper’ capital gains (e.g. surplus cash) to the next generation and hope to survive 7 years (PET taper relief entitlement commences after 3 years).
    • Assets that are pregnant with a ‘paper’ capital gain (e.g. rental property) to the next generation, hope to survive 7 years (PET taper relief entitlement commences after 3 years) and pay the (lower) CGT now instead of the (higher) IHT later. Consider going back on the business payroll, to replace this drop in income.
    • Even if a 7 year life expectancy is unlikely, consider making gifts to reduce joint estate value below £2m, so that entitlement to Residence Nil Rate Band is obtained.
    • Establish a pattern of making regular gifts out of surplus income (say for grand children’s education). Click here to find out more about gifts out of surplus income. Increasing your pension drawdown could be away to produce a higher income to fund these gifts.
  • To compensate for reduction in investment income, adding the retired director back onto the business payroll.
  • Other 11th hour restructuring.

Optimise IHT administration, e.g.:

• • Ring fence assets (e.g. main residence + payout from life assurance policies) to eventually settle the IHT liability,
  • Retaining sufficient rainy day cash for potential future ‘unforeseens’ e.g. care home fees.
  • Write 1st death/2nd death mirror Wills, gifting assets (taking care not to lose £1m BR/APR) to spouse on first death, to delay payment of any IHT due until the second death
  • Simplify your affairs, where practical.
  • Consider appointing one of our trusted partners, who already understands your business and financial affairs, as your Executor. We can then undertake applying for probate and administering the distribution of your estate.

Once we understand your preferred strategy, we shall then discuss your options for restructuring your affairs and rewriting your Will, to reduce this tax.

When advising you in this respect, we shall also fully explain to you the potential implications of such planning on your access to income and capital during your later years. You will clearly have to consider other practical and family dynamic aspects of possible future changes to your finances and/or business.

Most people consider IHT as an unwelcome reduction in the inheritance passed on to the next generation. As well as seeking to reduce this tax, our tax technicians will prepare all of the necessary paperwork and communicate with your Solicitor, so that you have peace of mind that your final tax affairs will be dealt with in a professional manner that you have come to expect.

Get In Touch

Contact your local office to speak to one of our Inheritance Tax Team and discover how we can help you today! Don’t forget that we also offer a free initial consultation.