We recently wrote a blog debunking the most common misconceptions about Inheritance Tax (IHT). Today we want to address the most common mistakes made, so you can be sure you’re avoiding them and minimising your exposure to IHT.
Inheritance tax is affecting more ordinary people every year, so getting a grasp on the details is becoming more and more vital.
That being said, please don’t take on the burden of IHT alone. We want to flag these mistakes so you’re aware of the most efficient way to plan, but we also want you to know there is expert help available to you.
1. Not planning at all, or waiting to plan
Not having a plan for your estate is the most common mistake we see people making. If you don’t think you need to plan at all – we recommend checking in with our common misconceptions post.
We know that Inheritance Tax isn’t a comfortable topic for everyone. You might be putting off planning, because it’s not pleasant to think about. But we encourage you to put plans in place sooner rather than later. Planning now will likely leave you feeling more secure and at ease, as you’ll know your loved ones won’t be left having to sell assets to pay off taxes.
Make the most of reliefs available to you:
- Consider making use of the nil rate band during your lifetime by creating a trust. There is potential to still have another nil rate band available on death.
- Ensure your joint estate is split between spouses in the most tax efficient manner to maximise residence nil rate band
- Maximise the annual inheritance tax reliefs to reduce the IHT on death
- Make lifetime gifts where possible.
You can read more details about the top planning tips in our dedicated blog here.
2. Not having a Will, or not reviewing your Will regularly
If you don’t leave a Will, the law will decide what gets passed on, and who gets what – and it may not be in line with your wishes. Without a Will, you may also find you’re paying too much in inheritance tax.
If you’ve already created a Will, you’re going to need to review it every five years at least – in order to make sure it is still relevant and effective. Since the creation of a Will, circumstances can change considerably, for example, the death or divorce of a spouse, or assets no longer existing.
3. Not checking to see if your life insurance policy is written in trust
With a life insurance policy, your loved ones are provided for with a lump sum if you pass away during the terms of your policy. Since this money isn’t subject to tax, your family will receive the full lump sum – however, if your life insurance policy isn’t written into trust, 40% of it could be lost to IHT.
When your assets are within a trust, they are under management of the trustees and are no longer a part of your estate. In this case, the lump sum will not be subject to the probate process, and the beneficiaries of the trust, or the trustees, may use the proceeds to pay the estate’s costs. Your life insurance policy can be written in trust at any time, and most providers will suggest it as an option.
4. Not getting expert help
This can feel like complicated stuff, which is why we always advise taking advantage of our tax expertise, so we can help you plan your inheritance tax effectively.
Every client’s tax position is unique, which is why we spend so much time understanding your situation, and making sure you and your family are protected. We deal with a range of clients who want to be sure their exposure to IHT is as low as possible.
We want you to have peace of mind that you’re getting the best advice, and you’re covering all bases. Please don’t struggle with this alone. If you think you may be affected by IHT in general or you’re battling any of these issues, do get in touch for a chat.