Estate Planning

Inheritance Tax (IHT) Planning
Estate planning is an essential part of your overall financial planning.  If your estate is within the current threshold of £325,000, then you will have no tax to pay.  If you think that you may exceed this limit within your lifetime, then you should make plans to either reduce your IHT bill or possibly remove it all together.
Any amount above the threshold will be taxed at 40% when you die.  Your beneficiaries will be in charge of paying your IHT bill.  You may wish to consider setting up an insurance policy to cover any IHT liability.  That way you know that your estate can be passed over in the event of your beneficiaries being unable to afford a high tax bill.
Married Couples & Civil Partnerships
Any assets passed to a spouse or registered civil partner on death are exempt from IHT.  Your partner’s IHT allowance will also be increased by any amount you didn’t leave for others.
Ways to Reduce your IHT Bill
  • Money given for a wedding, on the condition that the marriage goes ahead.  The limits for this are:
    • £5,000 from a parent
    • £2,500 from a grandparent
    • £1,000 from anyone else
  • Annual gift exemption:
    • You have an allowance of £3,000 each tax year which does not count towards your estate
    • This can be carried over to the following year, but if unused in that year will then expire
  • Leaving money to charity:
    • Any money left to a ‘qualifying’ charity is free of IHT.  If you leave at least 10% of your net estate to charity, then your IHT rate reduces to 36%
  • Certain national institutions:
    • Museums
    • Universities
    • National Trust
  • Small gifts:
    • You can gift up to £250 to as many individuals as you wish, however, if you give any more than that to one person the exemption is lost altogether
  • Regular gifts from your net income:
    • These will only qualify if you have enough income left after any payments to maintain your normal lifestyle
Potentially Exempt Transfers
 If you make a gift which is not exempt, it will become completely free of IHT if you live for seven years after the date of the gift.  You must not continue to hold any interest in the gift (for example, you cannot gift your house to you children and continue to live in it).
If you die within 3-7 years of the gift, you can apply for Taper Relief a follows:
Time between the date the gift was made and the date of death Taper relief percentage applied to the tax due                                
3 - 4 Years 20%
4 - 5 Years 40%
5 - 6 Years 60%
6 - 7 Years 80%


Please Note:
Estate planning is an extremely complex area.  If mistakes are made they may be irreversible.  It is important that you seek professional advice before making any decisions.