Reducing your exposure to inheritance tax – the value of working with a tax specialist

inheritance tax

Inheritance tax (IHT) has become an increasingly thorny problem for many individuals, and especially property owners over the past few decades. So it’s a topic that many of us will benefit from understanding in more detail.

In our last blog post, I helped to explain a little around how IHT works – and to iron out some of the more common misconceptions around the impact it can have on your wealth and tax planning. You can read more on these popular IHT misunderstandings here.

In this post, I’m going to grab the bull by the horns and show you how – with proper forethought, careful planning and the expertise of a professional tax adviser – you can reduce your exposure to inheritance tax and make sure you’re doing the best for your wealth, and the wealth of future generations.

The value of working with a professional adviser 

So, what IHT tax-planning tips should you be aware of? As a Saint & Co partner and tax specialist, I deal with a wide range of clients, all of whom want to know their exposure to IHT is as low as possible.

Every person’s tax position will be unique, and that’s why a big part of my job is sitting down with you to learn about your situation, your financial background and your other business and investment interests. Based on the many years of experience we have of helping private individuals to maximise the efficiency of their tax planning, here are my ten top tips for minimising your IHT costs.

10 important ways to minimise your IHT costs

  1. Summarise your assets and liabilities to see where there are planning opportunities. No two estates are the same and what may be suitable planning for one individual may not be suitable for others. For example, there are some financial products available which can give an immediate discount once invested – with the outcome that the balance of the investment falls outside of your estate after the seven-year threshold.
  2. Review your IHT investments regularly. Wealth planning has to be constantly monitored to make sure your plan is still effective and working as hard as possible for you. For example, if you’ve invested in shares with the Alternative Investment Market (AIM) or have applied for the Enterprise Investment Scheme (EIS), you need to ensure that you’re still eligible for Business Property Relief (BPR) – companies are taken over and can be listed on another stock exchange, which can result in you losing your eligibility to relief.
  3. Review life assurances and pensions. It’s important to review any life assurance policies or pension entitlements to ensure they’re written under trust. If they’re not, this can potentially create an additional inheritance tax problem, which you’d be best to avoid.
  4. Review your wills. Once you’ve created a will (or wills), it’s vital to review this document on a regular basis to make sure the will is still tax efficient and fully meeting your needs. This is especially important following the introduction of the residence nil rate band as a trust may result in this relief being lost.
  5. Look into a trust or family investment company. Once you’ve reviewed your situation, it’s worth considering whether a trust or family investment company should be part of your planning. By putting your assets and investments into this structure, it’s possible to limit some of your tax liability and cut your final tax bill.
  6. Spend all your money above your nil-rate band (NRB). Obviously, this will be totally impractical for the majority of people as we all need some assets to produce income for us to live on a day-to-day basis. But it’s available as an option and the theory should not be forgotten. Wherever possible, it’s sensible to gift assets down a generation – or maybe two generations – where your life expectancy is more than seven years.
  7. Set up power of attorney. The future can be uncertain, so it’s advisable to have a power of attorney in place with a relative or friend. With this power of attorney, they can then deal with your financial affairs and healthcare affairs, should you become incapable of doing so yourself.
  8. Consider the implications of paying for long-term care. If you need to pay for long-term care (should you require it at any point in the future) the assets in your estate will be taken into consideration by the local council when assessing your liability to pay for care. Investments should be reviewed to ensure they’re not only tax efficient but also council efficient.
  9. Don’t look at IHT in isolation. As with most taxes, it’s very important not to look at your IHT liabilities and planning in isolation from other taxes. You will always need to consider the effects of any planning, both on capital gains tax and on your own personal income tax liabilities.
  10. Work with a professional tax adviser. This may seem obvious, but you’ll achieve the best possible tax position by working with a tax adviser that has the experience and insights needed to plan your taxes effectively. It’s not just a case of minimising tax: there’s the ever-present need to make sure tax planning achieves your personal and business goals as well – and that’s where professional advice really is invaluable.

Talk to us about your IHT planning

At Saint & Co, our aim is always to help you achieve the best possible outcomes from your tax planning and wealth management. If you think you’re likely to be affected by any of the IHT issues we’ve highlighted, please do come and talk to us.

Get in touch with us to arrange a coffee and a chat with our Tax team.