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11th December 2020Heirs continue to be stung by inheritance tax

As the saying goes, there are only two things certain in life – death and taxes.

The phrase comes to mind as the UK government have recently announced a third successive year of an increase in estates being subjected to Inheritance Tax (IHT). Broadly, IHT is levied at a rate of 40 per cent on the value of the deceased individuals’ estate.

Notwithstanding the above, the majority of individuals’ estates will not be subjected to IHT as the value of the estate falls within the nil rate bands – where no tax is payable.

For those whose assets exceed the nil rate bands, with careful planning it is possible to mitigate the exposure to IHT.

It is recommended that planning is undertaken sooner rather than later in life, as the options available to you mean that the chances are greater of protecting your assets so that your loved ones can benefit from them.

Tips on how to make your heir’s life easier

  • Ensure your wills are up to date!

Your wills should be updated every few years to ensure that your wishes have no adverse implications on your IHT position.

  • Donate an element of your estate

Broadly, if you donate 10 per cent of your estate to a registered charity then the IHT rate on your remaining taxable estate is reduced from 40 per cent to 36 per cent.

  • Consider taking out a Life Insurance Policy

If it is likely that IHT will be payable on your death, you may want to consider taking out a life insurance policy.

These types of policies will cover the IHT payable by your beneficiaries on your death and are particularly useful for people whose assets are not readily convertible into cash – such as property and non-trading companies.

Earlier this year, a cross-party government report was issued proposing a number of changes to the IHT regime which would likely result in a further increase in IHT being payable.

With substantial changes to the IHT regime likely, the time might be now to contact your tax advisor to have an IHT “health check”. Contact us if you’d like to discuss IHT and make a plan.

Key contacts

Jamie Morrison HW Fisher

Jamie Morrison
Head of Private Client

020 7874 7983
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