Inheritance Tax Planning is a complex area that requires you and your financial adviser to go through a number of options and scenarios together, so we always advise that you speak to us before we go any further in inheritance tax planning matters.

We do of course get asked a lot of questions about this important aspect of estate planning, and here’s our top FAQs on the subject.

Can I reduce my Inheritance Tax Liability?

Yes, possibly - but you should seek professional advice from an appropriately qualified financial adviser before making any decisions, and certainly before putting any plans into action.

What can I do to reduce my Inheritance Tax bill?

Potential options include:- 

  • Make a gift during your lifetime

  • Put assets into a trust

  • Leave something to charity

  • Take out some life insurance (to help pay any inheritance tax bills, rather than mitigating them)

However, not all of these things may be suitable for you and your circumstances. Rather than make a hasty decision, it’s much better for you to seek formal advice from an appropriately qualified IFA.

Can I make a gift to my partner to reduce my Inheritance Tax liability?

Inheritance tax is not generally paid between spouses or civil partners.  Therefore, gifting assets within a marriage doesn’t actually help to reduce your overall inheritance tax liability.  Having said this, review the ownership of your assets is an important exercise in financial planning. You should speak to an IFA before making any decisions in this complex area. 

Will I reduce my Inheritance Tax liability if I make a gift to family / friends?

If you give something to a friend or a family member who is not your spouse or civil partner, and you no longer get any benefit from it, the gift will be treated as a Potential Exempt Transfer (PET).  Provided the person who made the gift lives for a further seven years, a PET will generally cease to be included in any inheritance tax calculation.

So, for example, if you give one of your children some money, and you live for a further seven years, it won’t be taken into account when calculating the Inheritance Tax liability when you die.

You can give away limited amounts every year and not have to pay Inheritance Tax.

For example, you can give away up to £3,000 per year as an immediately exempt gift and even higher amounts when children and/or grandchildren get married.

Just be aware that there might also be Capital Gains Tax to pay on certain assets that you give away in your lifetime.

Because the rules are complex, and to ensure you’re doing the right thing for you and your family, you shouldn’t do anything until you’ve spoken to an appropriately qualified and experienced financial planner.

If I give a gift to Charity does it reduce my Inheritance Tax liability?

Anything you leave to charity is free of Inheritance Tax so it can be a useful way of reducing your Inheritance Tax bill, while benefiting a good cause.

And if you leave at least 10% of your estate to charity, it will cut how much Inheritance Tax is due on the rest.

The rate at which Inheritance Tax in this scenario is calculated is 36% rather than 40%.

This rate is set against the balance of the estate to the extent that it exceeds the available nil-rate band (currently £325,000, although it can be reduced or eliminated by certain gifts made in a person’s lifetime).

This might not be a huge saving, but it can mean that family and friends will receive more than they would do otherwise – while your favourite charities also benefit.

However, it is important to take impartial advice from experts first. Making a wrong decision here could be costly, and we at Seventy Financial Planning have many years of experience and expertise to ensure your estate is handled and planned for correctly.

Can a life insurance policy affect an inheritance tax bill?

If you take out a life insurance policy, it won’t reduce the amount of Inheritance Tax due on your estate.

But the payout might make it easier for your surviving family to pay the bill.

It could potentially mean that they are able to prevent the family home from being sold.

But if you do this, is sometimes a good idea to place the life insurance policy into trust – failure to do this could make your estate even bigger and potentially result in more tax being paid.

A record £5.2bn in inheritance tax (IHT) was collected in 2018, with the number of estates within the scope of the tax increasing every year since 2009. 

The tax applies at 40 per cent on the whole of an estate at death, so a failure to plan can leave a substantial and unnecessary “dent” in your legacy.

Planning correctly, and with the appropriate advice, is vitally important. To make sure you don’t get caught out you should always talk to an expert before deciding anything.

Do I need a Will to help with my Inheritance Tax bill?

In 2017, more than half of UK adults had no Will. While few of us enjoy talking about our eventual demise, not having a Will can result in assets passing to the wrong person or in a way that gives rise to a larger IHT bill.

It is important to keep any Will up-to-date. Tax rules and legislation are always changing and it is crucial to make the most of any new opportunities and to avoid any pitfalls.

Expert advice can help get you on the right track and, with the right financial adviser at your side, you’ll be able to stay on track and ensure your estate goes exactly where you intend.

Start planning your future. Speak to us today.

Contact Us

Seventy Financial Planning
The Apple Store, Haggs Farm,
Haggs Road, Follifoot, Harrogate,

01423 611004

[email protected]

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