Trust and inheritance tax
Trust and inheritance tax

1. Ensure you write a Suitable Will. A “Will” will help direct assets but it will not protect assets. That being said, it makes sense to make sure you have a proper Will in place and it has been written by an experienced practitioner otherwise there could be a claim on your estate made by any person who believes they have a right to assets from your estate. This is particularly important when you have children from a previous marriage or children you are intending to cut out of your estate or previous spouses, etc.

2. Make certain you do calculate your inheritance tax liability and the potential size of that liability. This may sound obvious but sometimes people do not take in to account assets they believe they have gifted away and misunderstand the 7 year rule. Sometimes gifts are made and rights to those assets are still retained which means the exemption did not work. This is particularly important for people who have their own businesses as they need to make sure the business does in fact qualify for inheritance tax relief. Once again it makes sense to be certain by consulting an expert in this area. Lastly the biggest mistake people make is that they do not anticipate the growth in the value of their assets over time as the inheritance tax will not actually be payable until potentially the death of the second spouse.

3. Make sure you take advantage of all exemptions. The small exemption of £3000 per year can add up over years especially if used by both spouses. You could also make gifts out of excess income for people who have large pension incomes. For example, many people just add to their asset base and instead they could consider using the gifts out of normal income rules for this purpose – once again good records are essential.

4. Gift away assets you don’t use a lot or often, such as second properties, holiday homes, etc. However once again you should consider what would happen if your children divorce and you have already given assets away directly. This can be protected.

5. Life Insurance. For younger people one of the simplest ways is taking out a whole of life insurance policy. Again an experienced Adviser in this area is essential as there are a couple of different ways of doing this. One is considerably cheaper than the other and it is important you ensure that your Adviser charges you a fee opposed to taking commission from the policy. This can reduce the cost of the cover fairly significantly over a period of time. However even though this is a simple method it can be extremely expensive over the long term and generally we believe it is not the first thing one should look at.

6. Using Trusts for gifting; this is absolutely an area where an Adviser with experience within this area is essential as the rules around trusts are extremely complex. However this type of planning will help both protect a persons’ estate and also mitigate inheritance tax.

7. Utilising business property relief. For people with larger estates or for people who wish to retain access to their assets this is an invaluable route. However quite often the ease in inheritance tax mitigated should be taken with a caveat, basically rules can be changed and if one can holds assets which are allowable for business property relief and the rules subsequently change you may not have the ability of using the 7 year rule to avoid the tax.

8. You could consider giving gifts from your estate directly to charity this would be exempt from inheritance tax and could also be utilised to reduce your overall estate if you give more than 10%.

These are some of the ways that you should look at to mitigate the tax. However there are many different options and so many different methodologies to avoid inheritance tax. The main benefit of using an experience practitioner is the mix of all of these different types of plans that make it more suitable for any family. You really should ensure that you consult with an experience practitioner before undertaking any estate or inheritance tax planning.