18/04/18Considering your inheritance tax planning


One of the goals clients talk to me about is inheritance tax planning and reducing the amount of inheritance tax their children will ultimately pay.

I find that clients fall into one of two distinct camps; they either want to take every possible step to reduce the inheritance tax their children pay, or they feel their children will still inherit a sizeable amount after paying the tax – certainly more than they ever inherited – and therefore see this tax planning as unnecessary.

When we look at the variety of options and strategies available to reduce the amount of inheritance tax paid, it tends to be a trade-off between effectiveness and control.

The most effective inheritance tax planning strategies leave you with little access or control over your money. If you’re concerned about paying for care in later life, for example, then this lack of access to money placed in a trust, for example, might not appeal.

This is not to say that inheritance tax planning should ever be ignored. All of us should at the very least calculate and understand how much inheritance tax our children and grandchildren would pay in the event of our deaths.

It was interesting to read some new research which found that 64% of consumers aged 55 and over who use an IFA for financial advice are considering their inheritance tax planning.

The research from TIME Investments was actually framed to highlight the 36% of over 55s with an IFA who haven’t yet considered this important estate planning; we often find that surveys in the world of financial services like to highlight the negative, not the positive!

It’s important though to recognise how many advised clients are (and are not) thinking about inheritance tax, because the sums of money involved are significant. HM Revenue & Customs collected a massive £4.9bn in inheritance tax payments last year alone.

If you’re starting to think about inheritance tax planning, it’s important you don’t view it in isolation. The best estate planning is ‘holistic’; not my favourite word, but a good description of what should be all encompassing, as part of your wider financial planning.

Getting holistic with your inheritance tax planning means thinking beyond yourself and your partner, and considering intergenerational planning issues. This might start closer to home; understanding how much you need in retirement to live the lifestyle you desire.

It can be hard to put a precise figure on this, although with modern financial planning tools which take into account reasonable assumptions about future investment growth and price inflation, we can help you calculate your own number.

Assuming this number leaves you with surplus income and assets in later life, this is the money that can be used to reduce a future inheritance tax liability.

It could involve gifting money now (or at least during your lifetime) to your children or grandchildren. You might place some money in a trust in order to control its distribution, making sure the right money goes to the right people, at the right time.

There are also tools to consider such as Business Property Relief, which is very tax efficient when qualifying investments are held for at least two years.

Henny Dovland, TIME Investments’ IHT expert, said:

We all know the saying ‘you can’t take it with you’ but the pot still needs to last until the end. Intergenerational planning is about striking a balance between providing for each of the individuals with the right tax efficient income to cover different needs at various stages of their life.

The right advice at the optimum time is crucial in ensuring each generation can share in the family’s wealth both today and in the future.

TIME Investments shared in their research nine top tips for effective intergenerational financial planning, which I feel are worth sharing here.

  1. Start inheritance planning early to avoid time restrictions
  2. Consider the wider family and younger generations
  3. Understand financial planning strategies that can benefit several generations simultaneously
  4. Think about including Business Relief as part of inheritance tax planning
  5. Use the Residence Nil Rate Band to full effect
  6. Revisit trusts to assess their effectiveness for today’s families
  7. Use pensions as an efficient means of protecting the legacy
  8. Ensure clients do not pass on too much too soon and lose control or become dependent
  9. Review everyone’s circumstances regularly

If inheritance tax planning is on your radar or anything on this list of nine items piques your interest, please do contact me so we can chat about your options.

Considering this important planning item in combination with your retirement planning and making gifts to your family is a great thing to tackle early.

64% of consumers aged 55 and over who use an IFA for financial advice are considering their inheritance tax planning Click To Tweet

Privacy Policy

Registered Office: 21 High View Close, Leicester, LE4 9LJ : 10490287.

ISJ Independent Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Authorisation number: 770385.

The Financial Ombudsman Service is available to sort out individual complaints that clients and financial services businesses aren’t able to resolve themselves. To contact the Financial Ombudsman Service please visit www.financial-ombudsman.org.uk.