Could your Estate be subject to Inheritance Tax (IHT)?



Could your estate unwittingly be subject to Inheritance Tax (IHT) with HMRC being one of the largest recipients of your estate?

Former Chancellor, Lord Jenkins once called inheritance tax “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.

There are many ways to mitigate inheritance tax (IHT), to help protect your hard earned assets with specialist advice.

Though the tax is only paid by about 4.2% of estates, the amount it collects is rising sharply, passing £5.2bn for the first time in 2017-18, and the rules governing it are complicated.


What are the main Inheritance Tax Allowances?

Inheritance Tax is normally charged at 40% of the value of your estate above a certain amount.  This is known as the inheritance-tax threshold or nil-rate band, which is £325,000 for the current 2018-19 tax year.

Married couples can combine their IHT thresholds, meaning that up to the first £650,000 of their combined estate is IHT-free. Any unused nil-rate band can normally be passed on to the surviving spouse.


In April 2017, an Inheritance Tax break was also introduced on the family home. This means an individual can transfer an additional £125,000 this tax year to their direct descendants.  This is rising to £150,000 in the 2019/20 tax year and £175,000 in 2020/21.

Mark O’Neill, Director, explains: “This effectively means that, by 2021, an individual will have IHT-free allowances of up to £500,000.  Married couples or civil partners, can inherit any unused allowance from their spouse. This could potentially pass on up to £1 million before they have to pay IHT.”

Not unsurprisingly, many people would like to think that their estates won’t pay a penny more Inheritance Tax than necessary after years of saving and paying taxes.

How can an Independent Financial Adviser (IFA) help?

A good Independent Financial Adviser will often work in conjunction with a Solicitor. They ensure that a client’s estate planning is correctly advised and regularly reviewed.

As Mark states, “it is important that I help my clients assess their potential liability and the planning options available to them.  These may include making larger gifts outright or into a trust.  This typically takes seven years to be effective in addition to other actions.

There is often a balance to be struck between reducing an estate via spending and perhaps gifting capital, yet retaining enough for future needs such as long term care.”

Obviously, we all want to have our cake and eat it.  There are specific investments that can allow clients to gift capital yet retain the right to regular withdrawals.  Specialist investments also seek to offer a 100% saving to IHT after two years if held upon death yet provide access and control over capital in the meantime.  Whilst higher risk, these are proving increasingly popular.


The Financial Conduct Authority does not regulate Tax or Estate Planning


If you would like to speak to Mark O’Neill, Independent Financial Adviser and Director, please complete our enquiry form or call 01257 260011.  Mark is a SOLLA Accredited Later Life Adviser