Inheritance Tax is on the rise: Seven ways to mitigate the bill

Posted on

When estate planning, Inheritance Tax (IHT) can be a concern. Naturally, you want to leave as much as possible to your loved ones and ensure they’re not stressed about paying a bill at what is already a difficult time. Luckily, there are usually many ways you can reduce the IHT your estate will be liable for.

Despite this, IHT receipts are rising. For the tax year 2018/19, HM Revenue and Customs (HMRC) collected an additional £160 million in IHT when compared to the previous year. It means more than £5.4 billion was paid from the estates of the deceased.

It’s an issue that’s set to grow too. By 2030, Canada Life predicts the total amount paid in IHT could reach a staggering £10 billion due to the value of assets increasing while thresholds for paying no IHT remain static.

IHT is the amount owed on your estate when you pass away should it exceed certain thresholds. The standard Nil-Rate Band is £325,000. An estate valued up to this amount is exempt from IHT. In addition to this allowance, there is also the Residence Nil-Rate Band. This can be used if you’re passing your main home to children or grandchildren. It’s currently £150,000, rising to £175,000 in 2020/21.

Therefore, if the value of your estate is more than £475,000 for this tax year, or £500,000 from April 2020, some of your estate may go to the taxman rather than loved ones. However, with an effective plan in place, it is possible to eliminate or reduce an IHT bill. Among the things you can do are:

1. Make a will: A will is always an essential part of estate planning. It’s the only way to ensure your wishes are carried out when you pass away, without one in place, your assets will be distributed according to Intestacy Rules. This may vary significantly from what you want. It’s also an opportunity to assess the size of your estate and reduce IHT, for example, by the way assets are passed to loved ones.

2. Make full use of the Nil-Rate Band allowances: The value of your estate that falls under the Nil-Rate Band allowances is not liable for IHT. As a result, your first action should be to ensure you make full use of them where possible. If you’re married or in a civil partnership, you can pass on unused Nil-Rate Band allowances on to them. This means you can effectively pass on up to £1 million free from IHT from 2020/21 if your partner hadn’t used any of their allowances.

3. Use the gifting allowance now: Giving away assets now can help reduce the value of your estate, minimising the amount of IHT your estate will be liable for on your death. However, caution does need to be exercised here. For IHT purposes, assets given in the seven years before your death may be considered part of your estate, and therefore liable for IHT. However, you can gift up to £3,000 annually, which is immediately considered outside of your estate. Making use of this allowance can form part of your wider estate plan.

4. Give gifts out of your excess income: Following on from the above, gifts that are given from your regular income are also not included in your estate. These may include Christmas and birthday gifts. The key here is that you must be able to maintain your standard of living after making the gift. This can be tricky to understand in some situations, if you have any questions, please contact us. There are other gifts that are immediately excluded from your estate too, which can be found here.

5. Place assets into a trust: Assets placed within a trust are not considered part of your estate, and, therefore, aren’t liable for IHT. There are several different types of trusts and whether any are right for you will depend on your circumstances and goals. However, a trust can be useful in some cases, for instance, if you want to create an inheritance for children or still receive an income from the assets. For help understanding trusts, please get in touch.

6. Leave 10% of your estate to charity: If your estate is likely to be liable for a significant IHT bill, leaving 10% of your estate to charity can reduce the overall amount. Rather than paying IHT at the standard rate of 40% on assets above the Nil-Rate Bands, the rate will be reduced to 36%. It’s also an opportunity to support the causes or organisations that are close to your heart so it can be a win-win solution.

7. Take out life insurance: It isn’t always possible to eliminate an IHT entirely and you may be worried about how your loved ones will pay the bill. Taking out a life insurance policy and placing it in a trust can ensure it doesn’t eat into the inheritance you leave behind, as the sum paid out by the policy can be used to pay the bill. Placing the policy in trust is important, otherwise, it would be considered part of your estate and may increase your IHT bill further.

Please note: The Financial Conduct Authority does not regulate tax or estate planning.

We aim to keep our clients up to date on interesting and relevant financial news.

You can sign-up to receive our monthly newsletter by email, even if you’re not yet a client. Sign-up using the form below.

Client testimonials

I have always found Black Swan to be caring and understanding of my quirky lifestyle. I always feel they try to get me the best returns while respecting my current needs.

Sally Muir

A client since 2011

We would be very happy to recommend the support and service we receive.

Valerie Locks

A client since 2010

I have always been completely useless regarding finance - thankfully our financial adviser is not! I've retired with far more than I ever expected and investments continue to grow safely. So - thank you!

Bernadette Jane Warner

A client since 2000

Very happy with the professional service I have received and feel a lot happier now with my finances put in order.

Martin Field

A client since 2011

Julie Cooper was recommended to me by a work colleague. She has been very helpful, professional and has explained everything well. I would definitely recommend her services to anyone else who are interested in a financial review.

Steven Rooke

A client since 2018

…Service has been first class.

Hugh Fells

A client since 2012

My face to face meetings with Rob Young and Jessica Lyons have always been very open and understandable. My questions have been answered clearly and I have left feeling that my financial matters are in good hands.

Sandra Jack

A client since 2000

[A] safe pair of hands in a complex financial world.

Gary Middlehurst

A client since 2003

A reliable company with good communication skills and good knowledge of the financial markets.

Alan Evetts

A client since 2014

Maureen Pembridge is a long-time trusted advisor to our family. The market might fluctuate but her attention to detail is consistent.

Linda Burnard

A client since 2000

I am pleased to recommend Julie as a trustworthy financial advisor. She explains financial jargon in plain language, and always listens carefully to my particular financial needs and has helped me make the best of my savings.

Carolann Samuels

A client since 2010

I have always been satisfied with the way that Black Swan has handled my account. And I have always found the staff very helpful whenever I need to call the office.

Robert Anthony Matthews

A client since 2012

An excellent personal service from a person I know and trust.

Michael Dalton

A client since 2010

I am getting a very good services from Black Swan, they have got my investments sorted out which was in a bit of a mess.

Roy Jakens

A client since 2012

A good, efficient team providing clear ideas to shape a winning strategy.

Adrian Michael Levenstein

A client since 2011

Black Swan is a company to be trusted, with friendly staff and professional advisors.

David Brian Jennings

A client since 2017

I have been with Black Swan for many years. I have never wished to change anything. They give a good straight forward service.

Martin Barrett Brooks

A client since 2010

Andy Peters has been invaluable in firstly combining several pension pots and then giving excellent investment advice. It has given us a great deal of comfort to know that our financial affairs are in such good hands.

James Guillum Scott

A client since 2014

I find my financial advisor easy to talk to and feel that she understands my lifestyle. She is always available for help when I need her and explains in words that I can understand.

Margaret Ena Glasgow

A client since 2000

Andy is a first rate Director, excellent communicator and leader.

Ross Perry

A client since

Black Swan Financial Planning and Andrew in particular, are very clever at working out how risk averse we are, and coming up with solutions that we feel comfortable with. We are happy in the knowledge that we can continue to enjoy a comfortable retirement. Andrew Peters is a very, very friendly person who is great to chat to and easy to deal with. He explains things very clearly in layman’s terms, and if we still don’t understand, he explains it until we do!

Alan & Jane Dyer

Clients since 2012

We have always found Rob [Young] to be very approachable and knowledgeable. We have every confidence in the advice given and feel comfortable with the decisions we’ve made. There are certain opportunities that we wouldn’t have known about if Rob hadn’t brought them to light, which makes the advice good value for money as far as we’re concerned.

Peter & Pauline O’Halloran

Clients since 2013

Rob [Young] is extremely knowledgeable. I knew nothing about the different types of trusts which will not only secure my income in retirement, but also leave a legacy for my children. I’m glad that I sought his advice when I did.

Sarah Wilson

A client since 2015

I am extremely happy with the service afforded to me by the company and my adviser Julie Cooper.

Geoff Coxell

A client since 2010

My wife and myself have been dealing with Black Swan for a number of years. We have met with different representatives from the company over the years and have found all very helpful in their own way. We met with James [Anderson] a few years ago and found him very helpful and knowledgeable. He keeps in contact with us on a regular basis. We find the Company information very helpful and we feel very secure with our finances.

Andrew Kirchen

A client since 2015

I have always found my adviser to be easy to contact, very professional in his approach, yet friendly and understanding. I have a sense of an experienced company behind him, really on the ball financially and with good standards.

B McBean

A client since 2011

Partner with the most reliable and experienced team of advisers

Enter your details & we'll be in touch to discuss your needs.
Alternatively, contact us directly and speak to a member of the team.

    Subscribe to our newsletter