Letting your heir down?

17 June 2022

Over recent years, property inflation and rising asset values have combined to push a higher proportion of estates over the nil-rate band for Inheritance Tax (IHT). The residence nil-rate band helps to a degree, but with the IHT threshold frozen at £325,000 per individual, and government receipts still rising, IHT is not a tax just for the rich – or even moderately wealthy.

Despite the fact that more estates are paying IHT, there are ways to prevent families paying over the odds. For example, those with sufficient assets to trigger an IHT liability when they pass away could use the exemption which allows anyone to give away up to £3,000 worth of gifts each tax year without them being included in the value of their estate.

However, a lack of awareness about what does or doesn’t form part of an estate could result in their families paying more IHT than they need to.

Another way to minimise the impact of IHT is to take out a ‘whole of life’ insurance policy. This pays a lump sum on death, and when the policy is written in trust, the pay-out can help offset or eliminate an IHT bill.

Heir care

Whilst inertia and ignorance of estate planning is good news for the Treasury, which relies on it to ensure its tax receipts, the widespread lack of knowledge will worry many potential heirs. But taking the appropriate advice can go a long way to alleviating those concerns.

A financial adviser can help families with the transfer of wealth in an orderly and tax-efficient manner, establishing trusts, life insurance and so on, while also ensuring that the person who is arranging their estate has enough income to maintain their normal standard of living.

With the right advice, more estates could be removed from the grip of IHT and bereaved families could be spared the extra heartache of paying unnecessary tax.

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