The Importance of Planning and Inheritance Tax

Everyone knows about the importance of making a Will, as it is a key document for making provisions for your loved ones and planning for the distribution of your Estate upon your death. This can be especially important when deciding how to pass on business interests or if you are preparing your business for sale; this is usually a good time to review your finances and estate planning strategy as a whole.

The standard rate of IHT upon death is 40% and, subject to various reliefs and exemptions, IHT may be charged on the value of your estate above the £325,000 threshold. If your estate is over £325,000 you should consider obtaining Inheritance Tax planning advice as soon as possible in order to help minimise the potential 40% charge to Inheritance Tax upon death.

IHT and the associated reliefs and exemptions are complex.  In brief, when calculating the liability to IHT on death you take into account the total value of assets owned by the deceased at death, gifts made within the seven years before death and trust interests.  A deduction from that total will be made for any genuine liabilities.

Relief may also be claimed for business assets. The rules around what qualifies for business relief are specific and professional advice should be sought when planning for business assets. You may wish to utilise trusts in your Will that have the effect of “ring fencing” the assets that attract business relief so that these can be passed on separately from the rest of your estate.

In addition to planning through your Will, it is important to think about lifetime planning as part of an overall financial health check.  Lifetime planning gives you the opportunity to ensure that you take those steps which are appropriate for you and your circumstances, in order to maximise the value of your assets for future generations.

There are fundamental steps which you can take utilising current Government gifting exemption rules to pass on relatively small amounts of money without triggering any Inheritance Tax consequences or the “seven-year rule.”  For larger gifts and those gifts which may help the successive generations to achieve their life goals such as getting on the housing ladder or setting up their own business, careful consideration needs to be given as to how and when they can be made during your lifetime as part of a wider Inheritance Tax planning strategy.  By approaching this in a planned and considered manner is critical to ensure that an inadvertent tax charge is not a later consequence of well-intentioned actions.

By reviewing your wealth and talking to a specialist solicitor, you will be able to consider the current and future needs of your loved ones and how you can benefit them whilst preserving your assets.  This type of planning is complicated and there are many potential pitfalls along the way.  You should always seek professional advice before looking to progress any strategy for lifetime planning and preservation of your wealth.

Our Private Client Team will provide you with specialist and up to date Inheritance Tax advice - this is the backbone of an effective plan to minimise the Inheritance Tax potentially due either during your lifetime or upon death.