Inheritance tax and estate planning advice and solutions

Inheritance tax (IHT) is a tax on any part of your estate that exceeds your personal allowance when you die. Anything left to either your spouse or civil partner will be exempt from inheritance tax, regardless of whether the value exceeds this threshold.

IHT is usually charged at 40% and the executors of your estate must pay your inheritance tax bill within six months of your death.

Until the inheritance tax bill is paid, probate will not be granted and your assets can’t be distributed in line with your will.

Tailored planning can help put you in the most tax efficient position. Your Enriched financial planner will go through all pension allowances, business property relief and trust options with you to make sure you’re utilising everything available.

To support your beneficiaries in paying future inheritance tax liabilities, you could take out a life insurance policy to cover the anticipated bill. An insurance policy that will pay out a lump sum on your death could act as a means of settling the bill quickly and easily.

It is important to remember to set up any such policy in trust. This ensures the pay-out can go directly to your beneficiaries. If you don’t utilise a trust, the money will form part of your estate and your loved ones won’t be able to access it until the inheritance tax bill has been paid.

While HMRC has put rules in place to prevent people from avoiding an inheritance tax bill by simply giving away all of their money on their deathbed, individuals are entitled to give away £3,000 of capital in total, each tax year, free from inheritance tax.

This annual gift allowance can be backdated by one year, so where the full £3,000 is not used, it can be carried forward to the next tax year. This means that a married couple could give away a total of £6,000 a year to their children without incurring inheritance tax (or £12,000 if the previous year’s allowances were unused).

A trust is a way to make sure your assets are given to your loved ones in a timely manner, without incurring an inheritance tax bill. One benefit of using a trust is that it can be set up exactly to your own wishes and they can be tax efficient.

Trusts can be very complex and we recommend speaking to your Enriched financial planner when considering this route.

There may come a time when you are not physically or mentally able to make decisions regarding your finances or welfare. To protect you in this situation, you can entrust someone to manage your affairs for you if the need arises. This is called a lasting power of attorney.

If you lose the mental capacity to make your own decisions without a power of attorney in place, an application will need to be made to the court for someone to be designated to act on your behalf. This can be time consuming and expensive, but most importantly, you would have no control over who would be making your decisions.