Inheritance Tax Planning

Inheritance Tax (IHT) is now an issue for an increasing number of people, with the family home often pushing families into the Inheritance Tax bracket.

Much can be done to help to reduce the Inheritance Tax burden. Remember, though, that IHT is more an issue for those left behind, rather than for you while you are living. When considering any IHT strategy, firstly ask yourself whether you are compromising your own security and freedom of action, and whether that is worthwhile in order to save tax and increase someone else's inheritance.

The most effective way to reduce Inheritance Tax is to give money away to other individuals, if you can afford to do so. Provided that you survive for seven years after making the gift, no Inheritance Tax is payable on the gift. Note, however, that once you have made the gift you must have no further access to it.

Special types of trust can be created that can often help to reduce an Inheritance Tax bill. But be careful. Although using the right trust arrangement connected to the right investments can be very effective in saving IHT, using trusts inappropriately can lead to unexpected and expensive consequences. Specialist tax planning advice is essential.

If giving lump sums away is not possible, it may be worth thinking about giving a regular monthly amount to fund a life assurance policy. The proceeds from the policy can be used to pay the Inheritance Tax when it becomes due. Again, great care needs to be taken in ensuring that the correct arrangements are made, so that the policy proceeds don't merely add to the IHT bill.

Some investments also have Inheritance Tax advantages. If this appeals, it is important to be sure that the investment is right for you in itself, and that you are not taking unnecessary risks simply to save tax.

An easy option for those who object to their hard earned assets passing into Government coffers, and yet have no family that they would like to inherit, is to will assets to charity on death - the charity or charities would receive the whole amount with no tax taken off!

This information only touches lightly on the subject of death duties. It is a complex area, and one where you should seek advice.

For further information and advice, please contact us.