INHERITANCE TAX PLANNING
If you’ve been fortunate enough to build more wealth than you can use in your lifetime, it’s likely that you will be thinking about the best way to gift it on to the next generations.
However, the last thing you want when you’ve worked so hard to achieve your wealth is to give a hefty chunk of it away to the tax man.
The tax situation
The saying goes that the only two certainties in life are ‘death and taxes’, and this is both in one. If your estate value falls above the nil-rate band of £325,000 per person (£500,000 if you are passing on a primary property worth under £2 million to a direct descendant), your estate will be liable to pay some Inheritance Tax (IHT) (2025 figures).
Since pensions were brought into IHT liability at the Autumn Budget in 2024 (to be implemented in 2027), many more estates will automatically fall into this band.
Why plan for Inheritance Tax?
Don't pay more tax than you need to
While it may be inevitable that you will pay some Inheritance Tax, there are many ways to plan tax-efficiently to reduce your IHT bill. The less tax to pay, the more your beneficiaries will receive.
Don't pay more tax than you need to
Relax in the knowledge that your estate will be passed on as per your intentions, without having to carve it up to pay death duty.
Don't pay more tax than you need to
Through making smart use of gifting and other allowances, you can reduce the value of your estate during your lifetime rather than waiting for death. This way, you can enjoy seeing your beneficiaries put their inheritances to use as you intended.
Don't pay more tax than you need to
You can help to guide the beneficiaries and prepare them to accept and be responsible with the money that’s coming to them – perhaps even attach conditions that the funds must be managed by a trusted adviser.
Our solution
As part of the overall picture of looking after your money, this topic is sure to arise of its own accord. We can incorporate inheritance tax planning into your income strategy early and help to set you and your family up for a smooth, tax-efficient transfer of wealth.
By starting early and making use of mechanisms such as the seven-year rule to gradually gift sums out of your estate over time. This way, you will reduce your estate faster than you would have done through drawing an income alone and will increase the amount you are able to pass on tax-free.
In some cases, we may recommend a Trust inside an offshore bond, which can be a brilliantly tax-efficient way of passing on your wealth. You can read more about this here.
We can assist you through the entire process from start to finish, drawing on our network of solicitors where necessary to assist with the creation of trusts or other legalities.
Using a Trust to pass on wealth
David and Jane had recently retired when they came to Tideway for help with managing their wealth. We helped them with planning their income, but their main concern was their Inheritance Tax bill. With the changes coming in 2027, David’s SIPP would have counted towards their estate and would significantly increase their IHT bill.
However, David and Jane didn’t want to pass on the money to their two adult children straight away. To achieve their aims of taking the funds out of their estate and being able to delay the gifting to their children, Tideway recommended a Wealth Preservation Trust for the family, which was then placed in an offshore bond.
Read on to find out how this structure works to benefit the entire family.
Planning ahead for IHT
Tim, in his late 50s, came to us with a sum of £5 million ready to invest after selling his business. In addition to some support with income tax planning and investing his funds for growth, Tim wanted to think ahead and plan to mitigate his future IHT bill for the sake of his beneficiaries.
We recommended a portfolio containing an offshore bond, a capital gains portfolio, and a Venture Capital Trust (VCT). This initial plan has created some tax-efficient gifting options for Tim when the time is right. Our next steps will be further planning to keep his IHT bill as low as possible.
Start planning for Inheritance Tax now
There are many smart and effective ways to reduce the amount of Inheritance Tax your beneficiaries will owe upon your death. The sooner you start planning, the better.
Get in touch with us today to discuss how your wealth management plan can account for this.