Inheritance Tax Planning

As part of the planning of your estate, it is important to consider Inheritance Tax (IHT) and whether your estate would be liable for this.

How would your estate be affected?

The inheritance tax threshold for the nil rate band is currently £325,000. This means that your beneficiaries would currently have to pay 40% tax on any value of your estate above this threshold. So, on an estate of £400,000, your beneficiaries would receive a staggering £30,000 inheritance tax bill.

The inheritance tax threshold is stepped, with an increase to £350,000 planned for April 2010. However, as the value of your house is included in your assets when you die, the value of your property may mean that your total assets are still above the nil rate tax band for IHT.

Ways to reduce your inheritance tax bill

Some people assume that they can reduce their inheritance tax liability by giving their home to their children whilst continuing to live in it. However, this would not usually work due to either the gift being subject to Reservation of Benefit or Pre Owned Asset Tax which target people entering into agreements to dispose of assets whilst continuing to use them. These two measures ensure that your assets are likely to remain a part of your estate.

Where applicable there are still ways to ensure that your beneficiaries receive a reduced inheritance tax bill. One of these is through an equity release plan which would reduce the value of your estate.

Another way in which you can limit the amount of inheritance tax due on your estate is through a trust, which allows you to legitimately remove assets from your estate if set up appropriately.

These pages give a general overview of the issues surrounding Estate Planning and are based on our understanding of the current laws and tax regulation for England & Wales, which may be subject to change. They are not intended to give advice and you should seek professional advice when planning your estate.