Blog > tax > Inheritance Tax: Let’s get organised
Sarah Clarke, Tax Director
26 February 2024

Inheritance Tax: Let’s get organised

Let’s face it, none of us want to think about when we’re going to die, let alone talk about it, or consider if there’s going to be a tax bill waiting for our loved ones once we’re gone. But it’s really important to understand what your Estate is worth, and what your IHT exposure might be, so you can plan to minimise that (either in your lifetime or via your Will), and make sure your assets go to who you want them to when you’re no longer here.

Writing a Will is a task many of us put off but if you die intestate (without a Will), you risk causing difficulties for those close to you regarding the distribution of your assets. However, having a Will in place cannot always leave you in total peace of mind. Changes in family circumstances, such as the birth or children or grandchildren, separations and remarriages, can result in the desire to change your Will, perhaps more than once.

Trusts

To avoid the potential need for Will re-writes because or changes in circumstances, and to avoid passing without a Will that reflects your true wishes, you may wish to consider a more flexible arrangement.

Placing your assets into a Trust for existing and future Beneficiaries such a unborn grandchildren can mean all your assets can be distributed, relevant to the future needs of such Beneficiaries and as you desire, by an appointed Trustee.

Key attributes of a Trust also include:

  • Your assets are protected, which may be desired if any Beneficiaries are young, or in the event of a remarriage.
  • Any income that may arise from a Trust’s assets can be shared with wider family Beneficiaries, making use of available personal allowances and lower rate income tax bands.
  • The growth in asset values within the Trust will be outside your Estate.
  • A married couple can put two times the Nil Rate Band (so £650,000 at today’s rates) into a Trust without any IHT implications, every seven years.
  • The amount placed into a Trust, which is under the Nil Rate Band is protected from any future IHT charges for the lifetime of the Trust.
  • Certain assets attracting reliefs can be transferred into a Trust without impacting the Nil Rate Band.

Lifetime gifting 

There is the potential for lifetime gifts to be a Potentially Exempt Transfers (PETs), so long as the person making the gift survives for seven years following the giving of the gift, the value will fall outside of their Estate for IHT. However, if you were to die within seven years of the gift, the gift may be liable for IHT, depending on the total value of the Estate. If you survive at least 3 years, taper relief will apply so that the entire gift isn’t subject to tax.

Remember you’ve got your £3,000 annual exemption, and if you have not used last year’s exemption, you could gift up to £6,000 free of IHT. Regular gifts from excess incomes can avoid IHT if executed correctly.

Make sure you’re maximising your exemptions and allowances before thinking about making larger gifts which may be PETs or transfers into Trusts.

Please seek advice before making any sizeable gifts. It’s not just IHT, there may be Capital Gains Tax (CGT) to think about as well.

For information on IHT planning, the experienced Tax Team at Wilson Partners can help ensure an effective plan is in place regarding the distribution of your assets.

Webinar – Changes to the UK Trust Registration Service, May ’22

A short webinar and Q&A session with our Trust specialists Jodie Green and Sara Pedrotti. You can view the video and download the presentation here.

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