Being embarrassed to talk about money is a very British trait. It’s also not a very helpful one. According to recent research cited in the Independent, four fifths of people over 60 haven’t made any plans about their estate. Two-thirds of people in the same age bracket rarely or never discuss inheritance with their children. When it comes to Inheritance Tax planning (IHT planning), therefore, many of us are running the risk of needlessly giving money to the taxman instead of our loved ones, friends, charities or good causes.

Of course, there are exceptions. Decades before he died, my grandfather had created a full inventory of his possessions, detailing which of his children and grandchildren would inherit what – right down to a spare electric extractor fan! He made gifts to his children to take advantage of the 7-year rule. In short, he took good advice and everyone – including his solicitor – knew what his wishes were. When he finally died, Inheritance Tax was much less of a problem than it could have been.

If the new research is correct, his estate planning was the exception rather than the rule. This is a shame. Similar research quoted in the same Independent article found that “families could be paying an avoidable tax bill of more than £80,000 because parents are too embarrassed to talk about their financial future.” Most of us would much rather avoid such as situation.

Is now an even more important time for IHT planning?

In recent months, there has been a lot of speculation that Chancellor Rishi Sunak is eyeing up Inheritance Tax as something that could help him pay his multi-billion-pound COVID-19 bill.

One widely touted possibility is a percentage-point rise in the current IHT rate from 40% to 41%. This would apply to estates worth more than £325,000. It’s also thought that the Chancellor could slap at 45% rate on assets worth over £1 million. Some people believe that these rises will be temporary. Mind you, people said that about the Income Tax Act of 1842 and we’ve been paying that ever since!

I can’t change the tax rate. So why is planning so urgent?

If the IHT rate does go up in the near future, then Inheritance Tax planning becomes all the more important. In short, it’s even more essential to use legal strategies to prevent assets becoming subject to the tax. For example, the 7-year rule allows you to gift assets and not pay IHT on them – as long as you live for 7 years after making the gift. Depending on your circumstances and those of your spouse, it might make financial sense to make gifts to your partner. Giving to charity can also help lower your Inheritance Tax bill. You’re also allowed to give away up to £3,000 per year, tax free, and give money to children and grandchildren when they get married.

Rather more complex, but important for certain types of estate planning, is putting money, property or investments into a trust. Getting this right can be complex, but if done properly it can ensure these assets are no longer part of your taxable estate.

IHT planning sounds complex. What should I do first?

Your best first step is almost certainly to talk to an Inheritance Tax planning specialist. At THP, our IHT planning team can advise you on effective ways to minimise your future Inheritance Tax liabilities. They can also help you understand how IHT interacts with other taxes, particularly Capital Gains Tax.

When you know what is possible, then it’s time to break down that British reserve and talk to your family! With the right planning, you should be able to tell them that more of your assets will be passed to them and your preferred causes, rather than being poured into the public purse.

Why not make a start today? Use the form below to make an appointment with our IHT team.

Get in touch by filling out the form, or by calling us on 0800 6520 025

Yes! Please sign me up to receive THP’s fortnightly Email Newsletter.
I have read and understand THP Limited's Privacy notice.
Avatar for Ben Locker
About Ben Locker

Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.

Join The Conversation
ICAEW
Cyber Essentials Plus certification
Sign up for our Newsletter