In the United Kingdom, inheritance tax is a tax on the estate (property, money and possessions) of a deceased person. The tax is paid by the estate before it is distributed to the beneficiaries. The current inheritance tax rate in the UK is 40% on any part of an estate that exceeds the tax-free threshold, which is called the ‘nil-rate band’. As of the tax year 2022/23, the nil-rate band is £325,000, meaning that any estate valued above this amount could be subject to inheritance tax.

In 2017 the government introduced an additional ‘residence nil rate band’. This now stands at £175,000 and can be offset against the value of the main residence in certain circumstances.

It's important to note that inheritance tax is only payable if the total value of the estate exceeds the nil-rate band threshold, as such there are ways to plan for inheritance tax in advance, such as making lifetime gifts, setting up trusts or taking out life insurance policies to cover any tax liability. Seeking professional advice from a financial advisor can be helpful, helping you to understand the options available, allowing you to make an informed decision.

Planning for Inheritance tax? What options are available?

Inheritance Tax (IHT) planning is an important part of estate planning and several strategies can be used to reduce the potential IHT liability in the UK. Here are a few ways to plan for Inheritance Tax:

Make use of the annual gift allowance

Each tax year, you can gift up to £3,000 without it counting towards the value of your estate for inheritance tax purposes.

Make gifts to charities

Gifts made to charities are exempt from IHT, so if you're considering making a charitable donation, doing so in your Will or during your lifetime can reduce your IHT liability.

Make use of exemptions and reliefs

There are several IHT exemptions and reliefs available, including the spouse/civil partner exemption, the small gifts exemption and business property relief.

Set up a trust

Trusts can be used to pass on assets to beneficiaries while reducing the IHT liability on the estate. There are several types of trusts available, including discretionary trusts, interest in possession trusts and bare trusts.

Purchase life insurance

Life insurance can be used to cover any potential IHT liability, ensuring that your beneficiaries won't be left with a hefty tax bill after your death.

Remember - Seek financial advice

Are you concerned about inheritance tax, trusts or long-term care funding? Look no further than Springfield Financial Services Ltd. Our team of expert financial planners, including three who have completed the Society of Trust and Estate Practitioners' qualifications, are well-equipped to advise you on all aspects of Inheritance Tax, Trust & Estate Planning and Later Life Services. We can help you navigate the complexities of estate planning and provide guidance on IHT reliefs and allowances, pension planning, trusts, business relief and long-term care funding.

For further information or to arrange an initial no-obligation consultation at our offices or another mutually convenient location, please telephone us at 01772 729 742, or simply fill out our online enquiry form and we will give you a call to discuss your requirements.