What is included in your estate?
HMRC will value the estate on death, and will typically
include the following:
- your savings (bank
accounts, investments etc.)
- possessions (including
property)
- depending upon
exemptions, the value of any money or property you gave away during the seven
years prior to death.
A Will is the primary way of ensuring that your estate is
distributed, as you wish. If you wish to reduce the potential Inheritance Tax
owed on your death, there are ways in which you can plan to reduce the future
liability, as follows:
How can you reduce your IHT
liability?
- We all have a Nil Rate
Band, currently £325,000, to utilise. A Residence Nil Rate Band has also been
introduced, which is an allowance applied when you pass your home to children
or grandchildren on your death. The rates relating to each of these were
frozen until after the 2025/26 tax year in the last budget.
- If you leave all your
estate to a husband, wife, or civil partner, then usually no IHT will be due.
In addition to this, it is possible to pass any unused Nil Rate Band or
Residence Nil Rate Band to a surviving partner.
- You can utilise annual
gift allowances and provide gifts for specific people/purposes.
- Donating to registered
UK charities is also IHT exempt when alive and through your Will. Donating 10%
or more of your estate to charity can reduce the IHT rate applied to your
estate to 36% instead of 40%.
- Using trusts can also
be a way of reducing your IHT bill. Setting these up is a complex area and
professional advice is vitally important.
- There are various
investment vehicles specifically designed to be IHT friendly (for example, an
Enterprise Investment Scheme). These can be high-risk, and one of our advisers
will be able to assist you in recommending the appropriate solution.
All the methods mentioned have strict rules attached to
them, and we would strongly recommend seeking professional advice from one of
our financial planners, here at Lovewell Blake Financial Planning.
