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Inheritance Tax Planning

Inheritance Tax FormsWhen you die, the executors of your will, have to value all your assets and belongings (your estate) and deduct any debts or costs. The remainder, if above a certain threshold is subject to Inheritance Tax.

Inheritance Tax can be a major issue. Unless you carefully plan all your estate you could eventually become liable to the tax.

The individual allowance for 2017/18 is 325,000. The value of estates above the threshold of  650,000 for couples (husbands and wives and civil partners) is taxed at 40%. People who have been widowed also benefit by being able to use any unused portion of their deceased partner's allowance when they die. So if all the estate was left to a surviving partner, for which there is no IHT payable, that surviving partner will have the whole £650,000 allowance. For single people, the allowance is £325,000 which will remain until 5th April 2020. The rate of IHT dropped to 36% from April 2012 for estates leaving 10% or more to charity.

Until 2008-2009, the Inheritance Tax threshold was not increased over the years in line with house price inflation so the estates of home owners continue to suffer increased Inheritance Tax. The £650,000/£325,000 threshold was fixed in the April 2010 budget until at least 2014/15 but has now been extended to 2020/2021. The annual gift exemption, 3,000, has not been increased for many years so the ability to give assets away continues to reduce in real terms.

As from April 2017, there is a new main residence transferable nil-rate band increasing from 100,000 in 2017/18 to 175,000 in 2020/2021. This new allowance will also be able to be inherited from a spouse or registered civil partner. So in 2020/2021 an individual will have their own nil-rate band of 325,000 as well as a main residence nil-rate band of 175,000 and may have similar rate bands inherited from their partner giving the much advertised figure of 1 million. Note that it was also announced in the Summer 2015 budget that there would be tapered withdrawal of the main residence nil-rate band for estates worth more than 2 million.

Although reducing and in some cases being taken out of Inheritance Tax by the above changes, after all the taxation in your lifetime, on both income and capital gains, the Inland Revenue may still demand the final say with Inheritance tax.

But does it have to? The "Death Tax" has often been described as the "voluntary tax". If you give enough away during your lifetime, and you survive long enough to avoid any tax claw-back, then you could still have the last laugh - leaving no more than an amount equal to the "Nil Rate Band" where no tax applies.

How in practice can you do this and still leave yourself, and equally your spouse, enough to live on for the rest of your lives? And what are you to do about your house - possibly your largest single asset?

Inheritance Tax has many exemptions and reliefs and a useful starting point is to consider them. However, taking advantage of them in practice can be quite complex. For a gentle introduction to the subject, go to, click on 'Money, Tax and Benefits' and follow the links to Inheritance Tax, or go to the Money Advice Service section on inheritance tax.

A bespoke solution to inheritance tax is necessary as it will depend on the circumstances of each case. For example, what do your assets consist of and to what extent do you need them to generate income? Crucially, particularly for married couples, what flexibility is needed in terms of future access to capital or income, perhaps after the demise of the first to die?

A range of inheritance tax solutions is available which, individually or in combination, can meet most people's objectives and circumstances, and achieve a great deal. However, individual advice is essential.

Inheritance Tax - Are Your Loved Ones Liable For A Large Tax Bill?

Many of us will have a strong idea of who we’d like to leave our estate and possessions to when we die - and that list of deserving people is unlikely to include the Taxman.

Yet if you’re single or divorced and the value of your estate is above £325,000 - or, if you’re married, in a civil partnership or widowed, above £650,000 - your beneficiaries could be liable for a 40% tax bill on the excess. What’s more, your loved ones may be forced to pay this tax before they can inherit what you want them to have. However if you are the first person to die in a marriage or civil partnership and you leave everything to your partner then no inheritance tax is due on your death whatever the size of the estate.

Your estate can be made up of all manner of items. Properties and cars are the more obvious possessions; but also your savings, investments and jewellery are included in the value of your estate. When you add all your possessions up, you might be surprised by how much they are collectively worth. It’s also worth noting that future price rises - for example to house prices - could push up your estate’s value even further.

There was talk that the change of Government in 2010 would see the inheritance tax thresholds increased so only the very rich would be liable to pay it. However, the coalition Government announced in June 2010 that the existing £325,000/£650,000 thresholds would be frozen until at least 2015, subsequently extended to 2020/2021. If you believe you might have an Inheritance Tax liability, you can’t afford to delay addressing this potential issue.

The table below illustrates how much Inheritance Tax you could pay currently as a single or divorced person with no plans in place. However note the additional allowances mentioned above to be introduced from April 2017.

Estate Value Taxable IHT Payable at 40%
£325,000 or less £0 £0
£425,000 £100,000 £40,000
£525,000 £200,000 £80,000
£625,000 £300,000 £120,000
£725,000 £400,000 £160,000
£825,000 £500,000 £200,000
£925,000 £600,000 £240,000
£1,025,000 £700,000 £280,000

The table below illustrates how much Inheritance Tax you could pay if married, in a civil partnership or widowed with no plans in place.

Estate Value Taxable IHT Payable at 40%
£650,000 or less £0 £0
£750,000 £100,000 £40,000
£850,000 £200,000 £80,000
£950,000 £300,000 £120,000
£1,050,000 £400,000 £160,000


Where to Begin? Getting Support and Guidance

The good news is there are steps you can take to reduce or even eliminate your Inheritance Tax liability - while in some cases retaining full control of your estate. Many of the options available are simple and cost-effective to implement.

However, individual circumstances can differ widely, for example, what do your assets consist of and to what extent do you need them to generate income? Crucially, particularly for married couples, what flexibility is needed in terms of future access to capital or income, perhaps after the demise of the first to die?

While many potential solutions are straightforward to arrange, it’s strongly recommended you seek professional advice to ensure your individual circumstances are taken into account. See our page on obtaining financial advice


However if you feel that you need some help from a financial advisor, then visit our section on obtaining financial advice, or our page on Laterlife selected services and associated advice.


Retirement Planning - General guidance, Retirement Pension Planning, Inheritance Tax Planning - General guidance, Equity Release, Long Term Care, Making a Will, Annuities, Finding a Financial Adviser

Take a look at our overall section on retirement planning too.

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