Inheritance Tax

Understanding the rising impact of Inheritance Tax

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Exploring strategies to secure your family’s financial future

The amount of Inheritance Tax (IHT) paid by families has dramatically increased over the past decade, increasing from £3.1 billion in the 2012/13 tax year[1] to £7.5 billion in the 2023/24 tax year[2].

This rise is attributed to growing asset values and stagnant IHT thresholds, coupled with many families delaying their planning. An additional IHT allowance was introduced in 2017, allowing some families to pass on more assets without incurring IHT, yet the criteria for qualification can be complex.

WHAT IS INHERITANCE TAX (IHT)?

IHT is a tax levied on the transfer of wealth, typically paid by the estate of a deceased individual, but it can also apply during a person’s lifetime. Your estate includes all property, possessions, money and other assets.

If the value of your estate exceeds the nil rate band at the time of death, the excess is subject to IHT, generally at 40%. IHT is usually not applicable if everything is left to a spouse or registered civil partner. For the 2024/25 tax year, the IHT nil rate band is set at £325,000.

MAXIMISING IHT ALLOWANCES

Married couples and registered civil partners have the option to transfer any unused portion of their IHT nil rate band to the surviving partner, effectively doubling the threshold to £650,000. In addition, the ‘residence nil rate band’ introduced in 2017 can increase an individual’s IHT allowance if their main residence is passed on to direct descendants. This can potentially raise the overall IHT allowance to £500,000 per individual or £1 million per couple.

STRATEGIC PLANNING TO REDUCE IHT

The residence nil rate band gradually diminishes by £1 for every £2 that the estate exceeds £2million, becoming unavailable for estates valued over £2.35 million. An up-to-date Will is crucial to effectively manage IHT liabilities, as older Wills may contain trusts that impact the nil rate bands. Some individuals may postpone wealth transfer until death, but gifting during their lifetime can be more tax-efficient.

TAX-EFFICIENT GIFTING AND TRANSFERS

Tax-efficient gifts (tax year 2024/25) currently include annual exemptions of £3,000, wedding or registered civil partnership gifts up to £5,000 for a child, £2,500 for a grandchild or £1,000 for others, and gifts from regular surplus income.

Small gifts of up to £250 per person annually are also exempt, provided no other gifts are made to that individual, which takes the total above £250. Gifts not covered by exemptions are either ‘potentially exempt transfers’ or ‘chargeable lifetime transfers,’ which require surviving seven years to be out of the estate and which may incur immediate IHT.

UTILISING PENSIONS FOR IHT EFFICIENCY

Pensions can also facilitate tax-efficient wealth transfer. Should you pass away before age 75, benefits left in a money purchase pension can generally be transferred tax-free. If death occurs post-75, these benefits are taxed at the beneficiary’s marginal Income Tax rate. It may be prudent to draw retirement income from other sources, preserving pension funds for inheritance purposes.

ADDITIONAL STRATEGIES FOR REDUCING IHT

Other IHT reduction methods include establishing trusts, exploring specialist investment vehicles and considering whole-of- life insurance policies written into an appropriate trust. However, the intricacies of these options highlight the importance of seeking professional financial advice early on. Early planning significantly enhances the ability to leave a legacy that meets your family’s specific needs.

READY TO TURN YOUR LEGACY PLANS INTO REALITY?

Don’t just leave a gift; leave a legacy. If you’re ready to explore strategies for reducing IHT liabilities and securing your family’s financial future, contact us for personalised advice tailored to your unique situation.

Let us help you turn your legacy plans into reality.

Find Your Local Adviser

Source data:
[1] https://www.gov.uk/government/statistics/inheritance-taxstatistics-
table-121-analysis-of-receipts
[2] https://www.gov.uk/government/statistics/hmrctax-
and-nics-receipts-for-the-uk/hmrc-tax-receipts-andnational-
insurance-contributions-for-the-uk-new-annualbulletin#
inheritance-tax

Discussing Inheritance Tax

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You may well want to pass your estate onto your children when you die, but unless you make suitable plans your children will pay 40% inheritance tax (IHT) in the UK on all your estate above £325,000 which in today’s property market is most people’s property value alone.

You worked hard to earn your wealth, so let us work hard preserving it and help you and your family maintain its financial strength from one generation to the next.

If you are worried about Inheritance Tax and want to plan for the future, get in touch with us today.

Find Your Local Adviser

Exploring strategies to secure your family’s financial future

 1024 535 Jess Easby
By:

The amount of Inheritance Tax (IHT) paid by families has dramatically increased over the past decade, increasing from £3.1 billion in the 2012/13 tax year to £7.5 billion in the 2023/24 tax year.

This rise is attributed to growing asset values and stagnant IHT thresholds, coupled with many families delaying their planning.

Download our latest guide to look at how to maximise IHT allowances, strategic planning to reduce IHT, tax-efficient gifting and transfers, utilising pensions for IHT efficiency and additional strategies for reducing IHT.

Click here to download

Autumn Budget 2024: Inheritance Tax

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Departure from previous rules where pensions were excluded from calculations

In a significant shift announced by Chancellor Rachel Reeves, inherited pensions will become subject to Inheritance Tax (IHT) from April 2027.

This marks a departure from previous rules where pensions were excluded from IHT calculations. Currently, pensions are usually passed on tax-free if you die under the age of 75 – or taxed at the beneficiaries’ marginal rate of Income Tax if you die over 75 – but in most cases, pensions don’t attract IHT.

This announcement is expected to impact roughly 8% of estates annually, as those who have heavily saved in pensions to lower their IHT liabilities may now face new tax burdens.

Additionally, the IHT tax-free threshold remains frozen at £325,000 (your property, money and possessions) until 2030. If your assets include the family home that you’re giving away to children or grandchildren, you also receive up to a £175,000 residence nil rate band.

As property and asset values rise, more estates will likely fall above this threshold, incurring IHT at the standard 40% rate.

Chancellor Reeves emphasised that these adjustments aim to make the IHT system fairer, ensuring wealthier estates contribute more to public finances.

Also, starting April 2026, reductions in agricultural and business property relief will be introduced. The first £1 million of such assets will remain tax-free, with a 20% IHT levied beyond that, including on Aim shares.

Retirees may need to reassess their long term financial plans, as defined contribution pension funds could attract up to 40% IHT.

Despite these changes, no adjustments to existing gifting rules were announced.

Do you need a post budget financial health check?

Step 1 – download our free post budget Guide to see the extent of the changes announced: Download here

Step 2 – book a chat with one of our expert financial advisers to see how they can help and support your financial planning through the new legislation

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5 Financial Planning Conversations for you and your Family

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Discussing finances can evoke anxiety or discomfort, and this tension doesn’t ease when family members are involved..

How can you make financial planning conversations go smoothly?

  • Your Estate

Discussing who will inherit will help you avoid future disagreements, ensure your Will is up to date and minimise inheritance tax liabilities

  • Succession Planning

Building a succession plan that suits your needs ensures you have laid the firm foundations for your family’s future

  • Lifetime Gifting

It’s possible to gift tax-efficiently during your lifetime using various allowances and exemptions

  • When I’m gone Information

Discuss where you’ll safely leave basic details of your bank accounts, savings, investments, and utility providers

  • Power of Attorney

You can put in place a power of attorney, a legal document enabling you to name one or more people to look after your affairs if you lose capacity

If you would like to discuss your family’s financial future and how we can help, please get in contact

Find Your Local Adviser

Planning for Inheritance Tax

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Plan for Inheritance Tax

Whenever someone dies, the value of their estate may become liable for Inheritance Tax. If you are domiciled in the UK, your estate includes everything you own, including your home and certain trusts in which you may have an interest.

Inheritance Tax is potentially charged at a rate of 40% on the value of everything you own above the ‘nil-rate band’ (NRB) threshold. The nil-rate band is the value of your estate that is not chargeable to UK Inheritance Tax.

Gift assets while you’re alive

The amount is set by the government and is currently £325,000, which is frozen until 2026. In addition, since 6 April 2017, if you leave your home to direct lineal descendants, the value of your estate before tax is paid will increase with the addition of the ‘residence nil-rate band’ (RNRB). For the 2023/24 tax year, the RNRB is £175,000.

One thing that’s important to remember when developing an estate preservation plan is that the process isn’t just about passing on your assets when you die. It’s also about analysing your finances now and potentially making the most of your assets while you are still alive. By gifting assets to younger generations while you’re still around, you could enjoy seeing the assets put to good use, while simultaneously reducing your Inheritance Tax bill.

Make use of gift allowances

A non-exempt gift from one individual to another constitutes a Potentially Exempt Transfer (PET) for Inheritance Tax. If you survive for seven years from the date of the gift, no Inheritance Tax arises on the PET.

Some exempt gifts are immediately out of your estate: Each tax year, you can give away £3,000 worth of gifts (your ‘annual exemption’) tax-free. You can also give away wedding or registered civil partnership gifts up to £1,000 per person (£2,500 for a grandchild and £5,000 for a child). In addition, you can give your children regular sums of money from your surplus income.

You can also give as many gifts of up to £250 to as many individuals as you want, although not to anyone who has already received a
larger gift from you that tax year. None of these gifts are subject to Inheritance Tax.

Invest into IHT-exempt assets

For experienced suitable investors, another way to potentially minimise Inheritance Tax liabilities is to invest in Inheritance Tax exempt assets. These schemes are higher risk and are therefore not suitable for all investors, and any investment decisions should always be made with the benefit of professional financial advice.

One example of this is the Enterprise Investment Scheme (EIS). The vast majority of EIS-qualifying investments attract 100% Inheritance Tax relief via Business Relief (BR) because the qualifying trades for EIS purposes are very similar to those which qualify for BR. Qualification for BR is subject to the minimum holding period of two years (from the later of the share issue date and trade commencement).

Life insurance within a trust

If you’re looking to potentially minimise any Inheritance Tax your estate may be subject to, then consider placing life insurance within an appropriate trust. This allows the pay out from the policy to be given directly to your beneficiaries, which won’t be included in the calculations for any Inheritance Tax.

Taking this step can offer peace of mind for you and financial security for your heirs. Remember your life insurance policy is likely to be a significant asset – by putting it in an appropriate trust, you can manage the way your beneficiaries receive their inheritance.

Keep wealth within a pension

A defined contribution pension is normally free of Inheritance Tax, unlike many other investments. It is not part of your taxable estate. Keeping your pension wealth within your pension fund and passing it down to future generations can be very tax-efficient estate planning.

If you die before 75, your pension will be passed on tax-free (as long as no Lifetime Allowance charge applies). However, if you die after 75, your beneficiaries will pay tax on any payments they receive at their marginal Income Tax rate. Your pension will not usually be covered by your Will, so you will need to ensure that your pension provider knows who your nominated beneficiaries are.

Preserved wealth for future generations

We all have one thing in common: we can’t take our assets with us when we die. If you want to ensure that your wealth is preserved for future generations and passed on efficiently, an estate plan is crucial.

If you want to know more about Inheritance Tax and planning for your future, please get in touch

Find Your Local Adviser

Discussing Inheritance Tax

 1024 576 Jess Easby
By:

You may well want to pass your estate onto your children when you die, but unless you make suitable plans your children will pay 40% inheritance tax (IHT) in the UK on all your estate above £325,000 which in today’s property market is most people’s property value alone.

You worked hard to earn your wealth, so let us work hard preserving it and help you and your family maintain its financial strength from one generation to the next.

If you are worried about Inheritance Tax and want to plan for the future, get in touch with us today.

Find Your Local Adviser

Free Guide: Estate Planning

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What is the importance of estate planning?

Estate planning is about more than just tax. It is about making sure the people left behind are financially supported, that your assets are protected and that the tax your estate pays is fair.

Wealth preservation and wealth transfer are becoming an increasingly important issue for many families today.

Your estate consists of everything you own. This includes savings, investments, pensions, property, life insurance (not written in an appropriate trust) and personal possessions. Debts and liabilities are subtracted from the total value of all assets

There are various ways to legally avoid paying inheritance tax and we have produced a free Estate Planning guide to support you with Inheritance Tax Planning: Download Here

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Preserving Wealth for Future Generations

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Start your estate and inheritance planning as early as possible and implement in stages

The UK Treasury has been receiving record-breaking Inheritance Tax (IHT) receipts. IHT receipts amounted to approximately £7.09 billion in 2022/23, compared with £6.05 billion in the previous financial year.

For individuals and families who have to pay it, IHT can be emotionally challenging, often requiring the sale of cherished family assets to settle the tax bill. That’s why starting estate planning early and implementing it in stages is essential. Also, having an open conversation about estate planning with family members is very beneficial but depends on family dynamics and wealth levels.

Minimise Tax Liabilities

However, families should take proactive measures to minimise the possibility of facing a substantial IHT bill. By planning ahead and seeking professional advice, individuals can ensure their assets are managed to minimise tax liabilities.

Creating a comprehensive wealth strategy involves considering various factors.

Lifetime Cashflow

We can help you assess your assets and income to ensure we support your desired lifestyle throughout your lifetime. By understanding your cash flow needs, we can assist in structuring investments and creating a sustainable financial plan.

Lifetime Gifting

Gifting can be a valuable tool in wealth planning, allowing you to reduce a potential IHT tax burden. We can guide you on the various gifting allowances and exemptions available, such as the annual gifting allowance, wedding gifts and gifts from normal expenditure out of income.

Trusts

Most trusts offer flexibility and control over how your assets are distributed. They can also help reduce taxes on inheritance. This excludes Absolute Trusts, where control over assets is discretionary. Working closely with us, you can explore different trust options and understand how they can be incorporated into your wealth planning strategy.

Pensions

Pensions are important in wealth planning, offering tax advantages and the potential for long-term financial security. We can help you navigate the complexities of pensions, including risk assessment, accessing pension funds and maximising tax benefits.

Protection Cover

Protecting your loved ones in the event of death or illness is crucial. We can advise on selecting the right protection products to provide liquidity for IHT and other associated costs.

Business Relief

Incorporating business relief into your wealth planning strategy can be advantageous if you own a business or have qualifying assets. We’ll help you understand the eligibility criteria and how to leverage this relief effectively.

Financial Control and Estate Planning

Creating a Will ensures that your assets are distributed according to your wishes. Additionally, appointing a Lasting Power of Attorney provides someone with financial control over your assets and peace of mind if you cannot manage your affairs.

Estate planning is not a one-size-fts-all approach. Although there is no requirement to address IHT, proactive planning can minimise the tax burden on families. Seeking professional advice and taking steps early can help reduce the risk of leaving loved ones with a larger tax bill than necessary.

Do you want the peace of mind of tax efficiently passing on your wealth to your loved ones?

When you’ve worked hard to build up your wealth, you want the peace of mind to pass this on to your loved ones. There’s much to consider, especially if you have a complex estate. Who should it go to? And when? Is it sensible to pass on wealth during your lifetime? To discuss how we can help, do not hesitate to contact us.

Find Your Local Adviser

Inheritance Tax Planning

 1024 545 Jess Easby
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The UK Treasury has been receiving record-breaking Inheritance Tax (IHT) receipts. IHT receipts amounted to approximately £7.09 billion in 2022/23, compared with £6.05 billion in the previous financial year.

 

Due to rising property prices more of us are falling into the IHT liability category

Are you married or in a registered civil partnership?

You can pass your assets to your partner IHT-free (in most cases)

Start conversations with your loved ones

With thousands more households now falling into the inheritance tax liability category, it is important that you have a conversation sooner rather than later

Your estate consists of everything you own including:

To find out about our Inheritance Tax planning services, please get in touch.

 

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