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19 June 2014 0 Comments
Posted in Private Client

Five tips to ease your inheritance tax bill

Author headshot image Posted by , Partner

The weekend press reports highlighted that one likely effect of the recovering economy and rise in house prices will be to increase by a third the number of families potentially facing an inheritance tax (IHT) bill. The current IHT threshold of £325,000 was originally set in April 2009, where it is expected to stay until 2019. While it is difficult to avoid IHT altogether, its impact can be eased by following some basic rules.

1          Make sure you know what your estate is worth
Unless you have some idea of your assets, and their total value, IHT planning is impossible: IHT ‘bites’ when your assets are worth more than £325,000 (or £650,000 for most married couples/civil partners).  The average UK house price in May 2014 was over £266,000, but prices are predicted to rise by 24% by 2018. The stock market is also expected to reach an all-time high this year.

2          Think about what would happen to your estate on your death
If you die without having made a Will (‘intestate’), your family may end up facing a larger  inheritance tax bill than necessary. Contrary to popular belief, it is not the case that all your assets will automatically pass to your surviving spouse or civil partner if you die intestate. Making a Will – and keeping it up to date – is vital.

3          Start giving it away
Everyone can make total annual gifts of up to £3,000; an unused allowance can be rolled forward one year (so a couple can give away up to £12,000 between them). You can also make gifts of up to £250 to an unlimited number of people. Regular gifts out of your surplus income are exempt from tax, as are certain gifts made on marriage. Gifts to individuals which do not fall into these categories are not subject to ‘up-front’ IHT, but will be added back into your estate if you die less than seven years after the date they were made. Gifts to trusts are subject to different rules, but may be attractive because they can allow you to keep control over who benefits from the gift, and when, and over how investments are managed.

4          Make IHT-efficient investments
It is sensible IHT planning to give assets away if you are certain that they are genuinely surplus to your own needs. But if none of your assets are ‘spare’, you could think about investing them in something which will qualify for relief from IHT after you have owned it for a sufficient period of time (usually two years). A financial adviser can give you more information about these type of investments.

5          Do you need that inheritance?
IHT planning should be looked at in the context of your family overall. If your estate’s value is greater than the IHT threshold, and you feel you have enough to meet your own needs, it may be sensible to ‘generation skip’ – e.g. passing assets from grandparents to grandchildren. It may be possible to do this even after someone has died by signing a Deed of Variation to pass assets directly to your own heirs, without it passing through your own estate for IHT purposes.

If you would like more information on inheritance tax planning or wealth protection contact our Private Client team on 0800 923 2070 or email

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