With soaring UK property values, increasing numbers of households are becoming affected by inheritance tax (IHT), but there are numerous ways in which you can mitigate your liability, providing you are willing to do some advance tax planning.
Which of the following options you use will depend on the size and nature of your estate, your marital status, the age and type of your beneficiaries you wish and so on.
But whatever your circumstances, with good financial and tax advice, you should be able to reduce your IHT liability considerably.
- Add up all your assets including the value of your property, bank accounts, investments (including ISA, Peps, non tax free National Savings investments, mutual funds and investment trusts), chattels (personal possessions such as cars, jewellery, paintings, antique furniture and artefacts), etc
- Write a will
- Make maximum use of your tax exempt annual gift allowances (married gift)
- Make maximum use of tax free gifts to charities, political parties, national institutions such as the National Trust)
- Other gifts (which are not exempt), will be Potentially Exempt Transfers (PETs) and will be tax free if you survive 7 years from the date of the gifts. If you die within the 7 year period, IHT is applied on a sliding scale, using taper relief
- Married Couples with children should each make use of the ‘nil rate’ band, (where possible), whereby on first death, the nil rate band is used to bequeath assets to the children, with the balance of the estate passing to the surviving spouse.
- Discretionary gift trust (where appropriate)
- Discounted gift schemes (where appropriate)
- Gifts with reservation (where appropriate)
- Business property relief
- Enterprise Investment Schemes (unquoted shares) and AIM shares
- Agricultural property relief
- Woodlands relief
- Heritage property relief
- Gifted loan schemes
- Interest in possession trusts
- Absolute trusts
- Discretionary trusts
- Equity release
- Buy a whole of life assurance policy, written in trust for the benefit of your beneficiaries, which equals your expected IHT bill.
- Ensure that personal and stakeholder pension schemes are written in trust, where possible
- For occupational scheme members, check that an up-to-date expression of wish form is in place for death benefits to by pass your estate on death.
For more on IHT planning products and services, visit:
Read the Scottish Widows Inheritance Tax Guide
Last edited July 2007