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Inheritance (IHT) Tax Planning – Getting The Basics In Place

January 11, 2017

Advice from Optimise Accontants on how to minimise inheritance tax

By Louise Misiewicz

Are you concerned about who will get hold of your assets?

Are you considering why you should make a Will?

One of the most popular topics of conversation with our property investor clients is always how to minimise inheritance tax, or IHT, so that the financial assets gained from property investment are passed onto the next generation as tax efficiently as possible.

Our team of property tax experts are on hand to best advise our clients on how to decrease inheritance tax on their property portfolios, as well as considering other elements of wealth planning for the future.

Intestate is a term used for people that have died and have not made a Will. This means that nobody really knows the person’s intention of how to divide up their assets.

People often leave this too late, because they think either that it is not necessary or that they are too young.

There may be other reasons such as the fear and unpleasantness of death itself.

As I say to all of my property investment clients, you can’t control death, but creating a Will to make it easier on those that are left behind is something that you can easily control.

If you’re unsure how to minimise IHT, please get in touch with me and my team here.

Lifetime IHT allowance

Each person is provided with a nil rate band for IHT purposes of £325,000 as we wrote in a previous article here. If this nil rate band has not been used in upon death, it may be passed onto your spouse.

Let’s say that they didn’t use any part of their allowance – then the surviving spouse would have a revised nil rate band of £650,000.

Potentially exempt transfers (PET) – IHT planning

If someone has £500,000 worth of assets and they died, there would be an IHT bill as follows:

  • £500,000 asset value
  • £325,000 less the nil rate band
  • £175,000 assets chargeable to IHT
  • £70,000 IHT bill to be paid by the trustees

If £200,000 value of assets were transferred (ignoring Capital Gains Tax for now) and they survived for more than seven years, then the IHT liability would be revised as follows:

  • £500,000 original asset value
  • £200,000 assets transferred
  • £300,000 assets to be passed on
  • £300,000 less nil rate band
  • £0 subject to IHT
  • £0 IHT liability

As you can see by some effective tax planning, the person would save £70,000 in IHT alone. At the end of the day, it’s your choice who gets the £70,000: your loved ones or HMRC.

Capital Gains Tax (CGT) and transfer of assets

We have already written a detailed article here about CGT and how it will affect you if you transferred assets to other family members other than your spouse. This is because HMRC deems the asset to have been sold at market value, and then compares the market value to the original cost of the asset.

Many people transfer assets to save on the 40% IHT tax but pay the 28% CGT, which can be avoided.

Three things you must get done regarding IHT

  1. Make a Will and ensure that it specifies people by their name(s) and the specific assets to be transferred to them
  2. Use your lifetime transfer allowance as stated above in ways to mitigate CGT & IHT
  3. Create an investment structure that pays any IHT liabilities without the need to dispose of any assets

How to engage with us

If you want to understand how to implement this strategy or to discuss other finance or property tax questions, then please book some time with me and my team using the below calendar. We can help you to understand ways in which you can minimise IHT.

Please use the redeem code “Article 33” to get 33% off your next consultation call.

If you are looking for a new property tax expert, then please book some time with us using the below calendar.

Please note that this booking is to describe our specialist property tax services, and will not be used to discuss your personal tax affairs.



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Telephone: 0115 939 4606
Email: simon@optimiseaccountants.co.uk