Back to Insights

10 Strategies for Effective Inheritance Tax Planning

By admin
16 Nov 2023
IHT & Estate Planning

Navigating the complexities of inheritance tax planning can be overwhelming, especially with the freeze on tax thresholds impacting more families. To guide you in making informed decisions, here are ten valuable tips tailored for your inheritance tax planning with Edge Tax.

Feeling challenged by the prospect of managing an inheritance tax liability? You’re not alone. When devising inheritance tax mitigation strategies, it’s crucial to initially understand your current objectives and long-term needs. Only then should you delve into addressing the associated tax implications.

In the previous fiscal year, HMRC collected over £7.1 billion in death duties. Originally applicable to the affluent, inheritance tax now affects a broader segment of the population due to the prolonged freeze of the £325,000 tax threshold until April 2028. If you’re wondering how to navigate this landscape with Edge Tax, consider the following essential tips.

Ten Inheritance Tax Planning Tips:

Make a Will and Keep It Updated:

Creating a will is pivotal for estate planning. It ensures your assets align with your wishes, preventing potential inheritance tax (IHT) liabilities that could arise under intestacy rules.

Calculate the Value of Your Estate:

Assessing your estate’s value is crucial, considering complexities like joint assets, past gifts, and business holdings. For higher-value estates, strategic planning becomes vital to retain valuable additional bands.

Know Your Inheritance Tax Allowances and Reliefs:

Understand gifting rules, allowing tax-free gifts of £3,000 annually. Familiarise yourself with the seven-year rule for larger gifts and explore available allowances and reliefs.

Consider Using Trusts:

Despite rule changes, trusts can still be effective in specific scenarios for passing on assets and mitigating IHT. Evaluate their viability in your unique circumstances with Edge Tax.

Look at Protecting Your Inheritance Tax Liability:

Explore life assurance policies written into trust to shield against IHT liability. While these policies can be costly, they offer a means to cover the IHT bill without compromising your estate.

Give Money to Charity in Your Will:

Channelling funds to qualifying charities is IHT-exempt. Donating 10% or more of your net estate to charity can reduce the overall IHT rate, providing a tax-efficient and philanthropic solution.

Save into a Pension Plan:

Pension funds, including SIPPs, fall outside the IHT calculation. Utilise them effectively for savings, especially in wealthier families where passing them on to future generations is a consideration.

Set Up a Family Investment Company (FIC):

Explore FICs as tools for IHT planning, considering their flexibility in varying shareholders. Understand the tax implications and potential changes in their attractiveness over time.

Invest in an AIM Portfolio:

AIM portfolios, eligible for Business Property Relief, can be ‘IHT proof’ after two years. Assess the risks and benefits, considering them as part of your inheritance tax reduction strategy.

Spend All Your Money!:

While spending above tax bands might seem logical, it’s not practical for most families. Balancing inheritance tax planning with maintaining financial security is crucial. Focus on needs throughout your life and your family’s, ensuring a thoughtful approach to tax planning.

When to Seek Inheritance Tax Planning Advice with Edge Tax:

Commencing inheritance tax planning is never too early, and it’s common to start considering it around the age of 55. Collaborate with Edge Tax and a skilled financial adviser or solicitor to explore options. Whether initiating a gradual reduction strategy or implementing various methods over time, staying informed about your situation and long-term options is key. Prioritize understanding your needs before delving into significant inheritance tax planning with Edge Tax.

If you need advice about setting up trusts, and other forms of inheritance tax planning then reach out here to a member of our team

Don’t forget to keep and eye on our socials Facebook Instagram and LinkedIn

Back to Insights

Get our latest tax articles direct to your inbox

Edge Newsletter

What best describes you?