Inheritance: Fail to plan and your planning to fail

Inheritance tax planning is often postponed or neglected in today’s society. In reality it is one of the more important processes as it helps to ensure that a persons loved ones receive the highest possible amount of an estate rather than the taxman. With inheritance tax currently sitting at 40% an estate with little to no planning could be giving nearly half of that value over to HMRC.

In reality a person’s estate is very unlikely to be made up of only liquid assets such as cash or stocks and shares. Therefore if, for example, the main value is in property or other high value items the beneficiaries may be forced to sell these types of assets in order to afford the inheritance tax payment due on the whole estate.

Below we have explained a few of the ways to lower the tax bill before and upon death.

Reduce the size of the estate

The first idea is a simple one; if the size of estate is reduced then, subsequently, the tax payable is reduced. The easiest way to take assets out of an estate is gifting. Gifting is one of the most important tools a person can use to mitigate inheritance tax and increase the value passed on to loved ones. If a person gifts assets to a beneficiary prior to death there is no tax to pay so long as the person gifting survives his or her gift by 7 years. If, unfortunately, the gift is not survived 7 years there is a sliding scale of relief available dependant on the length of survival after the gift.

Gifts should be used where possible, however, caution must be taken so that the person giving away assets does not leave themselves in a position where they are unable to enjoy life to whatever standard they would like. Extreme care will need to be taken with properties as if a person’s home is gifted to another and the donor continues to reside their then rent will be payable at the market value to the beneficiary which is taxable income.

All in all, however, gifts are a great way of moving assets out of a person’s estate and therefore reducing any inheritance tax payable.

Keep your company

With the number of small businesses always on the rise the amount of people owning large portions of companies which form part of their estates is also rising. Upon retirement a person may be tempted to liquidate small companies and therefore release any residual value from the company into their own possession. In some cases it can actually be of great benefit to leave the company as it is and to bequeath the shares upon death. In this instance the value of the business could attract relief via business property relief from IHT of up to 100% and therefore reduce the overall value of the taxable estate.

Increase your nil rate band

Currently every single person who is domiciled in the United Kingdom will receive a nil rate band of £325,000 upon death. This means that an estate is only taxable upon the value above £325,000. This seems like a lot, however, with rising house prices it often does not cover a person’s full estate. Often upon death a husband or wife will leave the entirety of his or her estate to the other which attracts no tax whatsoever regardless of value. The other important thing about this transaction is that the surviving spouse or partner also inherits the deceased’s nil rate band.

This creates a situation where the surviving party now has a nil rate band of £650,000 which means that this amount can be left via their estate tax free.

In addition to this, as of 2017, an extra nil rate band is available on main property if the total taxable value of the estate is under £2,000,000. This amount begins at £100,000 but will rise to £175,000 by 2020. This could, in some cases, create a situation where a person can pass on £825,000 worth of estate to family tax free.


Hopefully the above illustrates just how important planning can be in ensuring that your estate is steered to your loved ones without HMRC taking a large chunk first. Each person’s situation is individual and, therefore, will need tailored advice on the best ways to reduce inheritance tax.

If you, or a loved one, are currently in need of estate planning or just want to talk through how it could benefit you please contact us via this website or on 01760 336730 to arrange a meeting.