“Frozen thresholds are bringing more and more estates within the web of the taxman”

Paul Barham, Partner at Forvis Mazars commented: “The latest figures from HMRC show that – like clockwork – IHT receipts continue to tick-up, with £98 million more collected than for the the same month last year. Frozen thresholds are bringing more and more estates within the web of the taxman and every month more families are finding the estates of their deceased relatives subject to the tax. While the Chancellor may soften the rules around IHT for non-doms, we also need to consider that pensions will be considered part of estates from 2027, tightening the screw even further for the ordinary Britons.

“Mitigating the tax is possible, but considered planning is required for this – especially given the rumours of further tweaks to IHT in the Autumn. Making use of allowances while you are able to is essential, as is knowing the rules around gifting.”

Tips for dealing with inheritance tax

The power of gifting

Gifting is an efficient and effective way of passing wealth to loved ones while at the same time reducing the value of your estate for inheritance tax purposes. Lifetime gifts are immediately exempt if they fall within the Annual Allowance (£3,000 pa) or Small Gift (£250 pa) exemptions. If you have a larger disposable income you might want to consider whether you might qualify for the normal expenditure out of income exemption which has no limit. Larger lifetime gifts can also be made but they do come with some rules, mainly a seven-year clock. You make a gift of any amount but if you pass away within seven years of making that gift, then some or all of that gift could be classed as part of your estate for IHT calculations.

Generally with gifting, the sooner you start the better. There are rumours that the 7-year gifting rule may be extended to 10 years as part of the Spring Statement. This would make passing on money through gifting trickier as the person making the gift would have to live 10 years rather than 7 to not trigger IHT bills. This change is not confirmed but if in doubt speak with an adviser who can guide you through other options available.

Consider Trusts or a Family Investment Company

If you don’t wish to make outright gifts, you can make use of a structure such as a Trust or Family Investment Company. This can have the effect of removing wealth (and future growth) from your estate while still enabling you to have control over the assets, as well as offering an element of asset protection in the event of a failed business or relationship breakdown. There are lots of different types of trust that each come with their own tax rules so it’s best to consult a specialist to ensure you choose the one that best suits your and your beneficiaries’ future needs.

Make a will

A will is one of the most overlooked financial documents and is perhaps the most essential thing you can do to ensure your estate goes to who you want and that your wishes are carried out. Without a will, your estate will be distributed under the intestacy rules. This can mean that some of your estate could be subject to IHT that could have been avoided with legitimate will planning.

Seek some help

Inheritance planning is notoriously complex. But there are advantages to starting earlier than you think is necessary. Seek the support of an adviser that you trust and one that you think will have your best interests at heart. While no one really wants to think about the need to pass on wealth, it can be of great benefit to your loved ones to get plans in place early.