EQ Guide: Protecting family wealth – 10 tips for saving Inheritance Tax

This guide explains how planning ahead of time can provide for – and in most cases reduce – the amount of tax that is ultimately due on your estate.

Guide Contents

Even though it’s the one tax you’ll never pay personally, Inheritance Tax (IHT) causes more heartache than most other UK taxes. IHT is a 40% levy on your estate when you die. The timing of the payment – before any money is released from the estate – can cause real difficulties for grieving families. In extreme cases families are forced to take out loans or sell property to pay the tax.

It’s impossible to predict what the exact value of your estate will be. However, it’s worth taking the time to understand the overall position your family will be in, and planning ahead to minimise the amount of tax due.

There is no tax to pay on the first £325,000 you leave to your heirs (the ‘nil-rate band’). Married couples and civil partners can leave up to double this (£650,000) IHT-free. Even with a combined band of £650,000 many couples have found increasing house prices mean their heirs are facing a tax bill on their death. From April 2017, a new exemption for residential property will come into force. Starting at £100,000 and increasing by £25,000 each tax year until it reaches £175,000 in April 2020, this will only apply where the family home is left to direct descendants, and will taper off for estates worth over £2 million.

Using these allowances in combination, by 2020 a married couple will be able to leave up to £1 million of assets to their children or grandchildren without paying any IHT.

If you review your situation and think there may be a tax bill for your heirs to pay, we have outlined some options to consider. Amongst the issues covered are:

  • Considering your pension pot alongside other asset
  • Making use of exemptions
  • Gifts of capital
  • Buying company shares
  • Equity release


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