Want more insights in real time?
Only one click away.

It can be easy to fall into the trap of thinking that Inheritance Tax (IHT) only applies to the very rich and that you and your family won’t have to worry about it because your estate or legacy won’t run into millions of pounds.

Actually, it would be a big mistake to think that way. 

Although, as an individual, you have a personal allowance of up to £325,000 before you become liable for Inheritance Tax (IHT), your estate could potentially be taxed at 40% if its value is in excess of this figure.

It’s therefore vitally important that you cushion your loved one against the potential impact of Inheritance Tax (IHT) through considered Inheritance Tax planning.

What is Inheritance Tax (IHT)?

To begin with, let’s briefly summarise what Inheritance Tax (IHT) is.

Inheritance Tax (IHT) is a tax on the estate (which includes property, money, investments and possessions) of someone who’s died.

Who has to pay Inheritance Tax (IHT)?

Anybody that inherits the estate of someone that has died, if the value of that estate exceeds £325,000.

So, your loved ones could end up with a hefty bill upon your death if your legacy exceeds that personal allowance figure (it should be noted that married people or those in civil partnerships can pass their unused allowance to their surviving spouse, resulting in an allowance of up to £650,000).

The UK government actually collected a whopping £5.2bn in Inheritance Tax (IHT) last year 1, with the number of estates within the scope of the tax increasing every year since 2009. 

A failure to properly plan your estate and prepare for Inheritance Tax (IHT) can leave a substantial and unnecessary dent in your legacy, and mean that your loved ones won’t be able to enjoy it in the way you’d like them to.

Are there effective ways to plan for Inheritance Tax (IHT)?

Yes, thankfully there are.

A lot of the people that get hit with Inheritance Tax (IHT) end up with such hefty bills because the person that died either didn’t know that there are effective ways to plan against the impact of Inheritance Tax (IHT) or because they didn’t get around to discussing estate planning options with a financial adviser.

Below, we outline some of the available options.

Inheritance Tax Planning

Make your Will* 

If you want to make sure that your wishes are carried out upon your death, the surest way to go about that is by drawing up a Will.

That may seem obvious, but you may be surprised to learn that only around three-quarters of people aged between 45 and 55 have a Will in place. And – rather more shockingly – only just more than half of people over 55 have one 2.

If you were to die without having made a Will, certain rules mean that your money, property or possessions may be allocated in ways that you might not have wished. 

Wouldn’t you like to have control of the way that your worldly goods and possessions are distributed after your death?

Equally, unmarried partners and partners who have not registered a civil partnership cannot inherit from each other unless there is a Will in place, so the death of one half of that couple could potentially create serious financial problems or uncertainty for the remaining partner.

For instance, while most couples who are either married or in a civil partnership leave everything to each other and potentially benefit from increased IHT-free allowance, a partner who falls outside this category could lose out to relatives of yours that you would rather your legacy didn’t go to.

And, if you have children, you must make a Will so that arrangements for the children can be made if one parent – or both – were to die.

It may also be possible to reduce or effectively manage the amount of Inheritance Tax (IHT) payable if trusted financial advice is taken in advance and a Will is drawn up.

What are Bloodline Wills?

If you want to make sure that your wishes are carried out upon your death, the surest way to go about that is by drawing up a Will.

That may seem obvious, but you may be surprised to learn that only around three-quarters of people aged between 45 and 55 have a Will in place. And – rather more shockingly – only just more than half of people over 55 have one 2.

If you were to die without having made a Will, certain rules mean that your money, property or possessions may be allocated in ways that you might not have wished. 

Wouldn’t you like to have control of the way that your worldly goods and possessions are distributed after your death?

Equally, unmarried partners and partners who have not registered a civil partnership cannot inherit from each other unless there is a Will in place, so the death of one half of that couple could potentially create serious financial problems or uncertainty for the remaining partner.

For instance, while most couples who are either married or in a civil partnership leave everything to each other and potentially benefit from increased IHT-free allowance, a partner who falls outside this category could lose out to relatives of yours that you would rather your legacy didn’t go to.

And, if you have children, you must make a Will so that arrangements for the children can be made if one parent – or both – were to die.

It may also be possible to reduce or effectively manage the amount of Inheritance Tax (IHT) payable if trusted financial advice is taken in advance and a Will is drawn up.

Regularly review your Will 

Circumstances change. You may divorce perhaps, perhaps, and need to amend your Will to make sure a new partner or their children can inherit. Or, you might want to guarantee that what you leave behind goes to your children and grandchildren rather than your partner.

Tax rules and rates are always changing, and it’s important to keep abreast of these to avoid potential pitfalls or make the most of new opportunities.

That’s why it’s so important to review your Will and estate planning options on a regular basis.

Embrace the gift of giving

One of the most straightforward and effective ways to plan again paying Inheritance Tax (IHT) is to spend or give your money away during your lifetime.  

Each tax year, you’re allowed to give up to £3,000 away as a gift, split between however many people you like. 

You can give wedding gifts of up to £1,000, gift up to £5,000 to your children and £2,500 to grandchildren. 

There are some potential complications, though, so be sure to consult your financial adviser before opting for this strategy.

Avoid Inheritance Tax

Leave money to a charity or a sports club 

Any money you leave to a UK-registered charity will be exempt from Inheritance Tax (IHT).

The same rules apply to local amateur sports clubs – like a village cricket club, for instance – or even to political parties.

Furthermore, if you leave more than 10% of your taxable estate to one of these groups in your Will, the Inheritance Tax (IHT) rate for the remainder of your estate will fall from 40% to 36%. 

Again, although this all sounds relatively straightforward, it’s not always quite that simple – so make sure you speak to a financial adviser before you pursue this estate planning and Inheritance Tax (IHT) strategy.

Life insurance as an effective Inheritance Tax planning strategy

Any money you leave to a UK-registered charity will be exempt from Inheritance Tax (IHT).

The same rules apply to local amateur sports clubs – like a village cricket club, for instance – or even to political parties.

Furthermore, if you leave more than 10% of your taxable estate to one of these groups in your Will, the Inheritance Tax (IHT) rate for the remainder of your estate will fall from 40% to 36%. 

Again, although this all sounds relatively straightforward, it’s not always quite that simple – so make sure you speak to a financial adviser before you pursue this estate planning and Inheritance Tax (IHT) strategy.

Make sure your inheritance goes where you want it to

Many people are unfortunately unaware that Inheritance Tax (IHT) can have a significant impact on your estate planning and loved one if it’s not planned for correctly.

Making sure that your estate is in order – and that those you love will be well looked after – can bring peace of mind and comfort. 

Sage Wealth Management’s financial advisers pride themselves on providing a bespoke service built around the belief that – in order to meet their Inheritance Tax (IHT) and estate planning needs – each of our clients deserves to be treated as unique.

Being part of St. James’s Place – one of the UK’s leading and most trusted wealth management organisations managing a £115.7 billion (correct as at 30/06/20) fund – means that Sage Wealth Management and its experienced advisers are ideally placed to offer clients one of the most comprehensive range of Inheritance Tax (IHT) and estate planning options available. 

Sage Wealth Management is here to give you the best Inheritance Tax (IHT) and estate planning advice there is, and to and help you provide a comfortable financial future for your loved ones when you die.

Please get in touch today to understand your Inheritance Tax (IHT) and estate planning options.

Email us at michael.sage@sjpp.co.uk or call 01665 667 078 to book an appointment.

The value of an investment with Sage Wealth Management and St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

*Will writing involves the referral to a service that is separate and distinct to those offered by Sage Wealth Management or St. James’s Place. Wills, along with Trusts, are not regulated by the Financial Conduct Authority. 

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

1. This is Money, July 2020

2. The Independent, January 2018

Event List