Inheritance Tax – 10 Top Tips

Aug 3, 2021 | Tax Tuesday, Taxation

This week Tax Tuesday highlights the increasing UK inheritance tax take and the value of planning to reduce the IHT burden on your family and beneficiaries.

The UK government collected £5.32 billion in Inheritance Tax in 2020/21. The inheritance tax take is only going to increase with house price increases, the freeze on inheritance tax allowances announced in March and the 40% inheritance tax rate.

Two things are inevitable for everyone – death and taxes.  But there is much you can do during your lifetime to understand and plan your inheritance tax position to reduce the burden on your family and other beneficiaries. And there is no time as opportune as the present, given that we are still, at the moment, in a regime which permits outright gifts without immediate inheritance tax charge, finally secured once you have survived a further seven years. Compare this with regimes such as Ireland, where there are lifetime charges. How long will it be before the UK starts to impose tax charges on lifetime absolute gifts?

Everyone’s position is different – and that is why increasingly we are preparing comprehensive bespoke reports for clients setting out the current position based on their assets and will, and setting out ideas and options to reduce their liabilities. This can be extremely valuable to the final estate.

So, if this is of interest, come and talk to us. IHT planning can be gradual – and a phased approach is much more valuable than death bed planning where options are more limited.

In the meantime, here are ten quick tips:

  1. Make sure you have access to your IHT nil-rate band and IHT residence nil-rate bands, including those transferable from your spouse.  In particular, make sure your will is written in such a way to take advantage of the residence nil-rate bands.
  2. Make use of your £3,000 annual IHT exemption and also make regular gifts out of income where these are possible.
  3. Consider outright gifts of cash and other assets – but beware of gifts with reservation of benefit and the pre-owned asset tax regime.
  4. Review your asset holdings to see which will benefit from IHT reliefs.
  5. Consider gifts of business assets such as shares; these may benefit from IHT business property relief at present but will this be the case in the future?
  6. Consider settling trusts of up to £325,000 for your grandchildren. See Tax Tuesday ‘The Grandparents’ Settlement’.
  7. Take advice so you benefit from downsizing allowance if you are going to downsize or sell your home.
  8. Review life assurance policies and see if these are written under trust.
  9. If you are drawing down income from a personal pension fund but have surplus assets then consider living off this excess capital.  Remember that the remaining pension fund passing to your beneficiaries on death is not subject to IHT.
  10. IHT rates reduce from 40% to 36% where amounts passing to charity from your Estate meet certain thresholds.  If your will already includes charitable donations then review to see if you will benefit from this reduced rate, or could potentially do so by changing the wording of your will.

How can we help?

Inheritance Tax planning can be valuable but can seem daunting and complex. If you would like advice, please don’t hesitate to get in touch with your relationship principal, call 0161 905 1616 or email