Inheritance Tax

For support understanding the solutions to mitigate your inheritance tax liability, speak to one of our experts by booking your free 30-minute consultation.

Please note: tax treatment is based on individual circumstances and may be subject to change in the future. Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. Please also note: the Financial Conduct Authority does not regulate will writing, inheritance tax planning, and trust planning.

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Protecting your family & estate

With the ever-increasing value of properties and assets, Inheritance Tax (IHT) is a growing concern. Upon death, following the deduction of the Nil Rate Band (NRB) allowance and Main Residence Nil Rate Band (MRNRB), which is currently a total of £500,000 for individuals and £1,000,000 for married couples, any remaining assets may be liable for tax at a rate of 40%, as stated by GOV.UK – ‘How Inheritance Tax works: threshold, rules and allowance.’

If you are considering insurance to mitigate Inheritance Tax, it is recommended that you get your estimated current liability approved by an independent financial adviser, chartered accountant or certified tax adviser.

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What options are available to mitigate Inheritance Tax liability?

Gift Inter Vivos Solutions

One way for people to reduce IHT liability is to gift their assets to beneficiaries over their lifetime. A gift (such as a cash lump sum to children) made during an individual’s lifetime may be classed as a potentially exempt transfer (PET) and only become IHT-free if the donor survives 7 years from the date it was gifted. If the donor doesn’t survive the 7 years, the PET would likely form part of their estate for IHT purposes and could result in a tax liability on the gift (if there is no available nil rate band).

There is taper relief on amounts above the available nil rate band, which could be available during the 7 years. Therefore, if the death occurred in the first 3 years, 100% of the value of the gift would be used. However, this would reduce for deaths in years 4-7 (see table below).

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Year after a gift has been made Tax due (percentage of the 40% due)
1 100%
2 100%
3 100%
4 80%
5 60%
6 40%
7 20%

What is a gift inter vivos policy?

A Gift Inter Vivos life assurance policy provides a lump sum to cover the potential IHT liability that could arise if the donor of a gift is not covered by the NRB or MRNRB and dies within 7 years of making the gift. The lump sum provided is in line with the potential IHT liability and reduces in line with the taper relief available (as above). The policies would be written under Trust for the recipients of the gift. This enables them to pay the IHT due in respect of the gift, if the life assured were to die during the term of the plan.

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Whole of Life Insurance Solutions for Inheritance Tax

Whole of Life Joint Life/Second Death insurance is especially relevant to the growing number of couples that have assets that are now worth more than the inheritance tax-free band – but who cannot effect any worthwhile inheritance planning through gifts of cash or property because most, if not all, of their assets are tied up in their main residence.

The sum assured is payable on the death of the last policyholder. In the case of a married couple’s joint life policy, should one spouse pass away, the surviving spouse must maintain the premium payments until their own death.

It is vital to make the sum assured the subject of a Trust, which ensures that the proceeds can be paid to the beneficiaries outside of the estate for inheritance tax purposes and for avoiding probate.  The beneficiaries can, in turn, use the proceeds of the policy to pay any inheritance tax liability that becomes due.

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