How can working with an expert really reduce your Inheritance Tax bill?

Inheritance Tax

When you pass away there are many things that you may want to leave to your loved ones, from fond memories to treasured heirlooms, but a hefty tax bill is rarely one of them.

When doing your estate planning, it’s understandable why you’d want to reduce your Inheritance Tax liabilities as much as possible, but it can sometimes be hard to navigate the potential pitfalls of tax law.

If you want to reduce your tax bill so you can leave more money to your loved ones, here’s how working with a professional can help you.

Inheritance Tax hauls have been growing in recent years partly due to rising house prices

While most taxes are unpopular, Inheritance Tax (IHT) is particularly disliked by many people and is often referred to as “Britain’s most hated tax”. Most Brits understand the necessity of taxes but being landed with a hefty bill at a time when you’re grieving the loss of a loved one can certainly seem unfair.

One of the main problems that people have with IHT is that the laws surrounding it can be confusing to understand. Furthermore, rising house prices, coupled with a threshold that has been frozen for several years, has meant that tax hauls have been trending upwards in recent years.

According to figures by consumer data company Statista, IHT made up around £5.32 billion of government revenue in the 2020/21 tax year. While this is slightly lower than its historic high of £5.36 billion in 2018/19, this haul is more than double what it was a decade ago.

One of the key reasons for wanting to reduce the size of your IHT liabilities is often so that you can help your children financially. With the significant growth in house prices in recent years, many young people rely on inheritance to help them to take their first step onto the property ladder.

Furthermore, according to reports by the Institute for Fiscal Studies, inheritance now plays a significant role in social mobility in the UK. By reducing your tax bill, you could be making a large difference to your children and grandchildren when you pass away.

Working with an adviser can help you to overcome any confusing tax laws

Despite the important impact that inheritance can make to the lives of loved ones, studies show that the majority of Brits don’t know what their IHT bill will be.  According to a study published by FT Adviser, 52% of people were ignorant of what their liabilities would be when they die.

If you want to reduce your tax bill when you pass away, there can be a lot of potential tax issues to think about. Many of the laws surrounding IHT can be extremely baffling, which is why it’s important to take care.

If you’ve ever tried DIY, you’ll know that making a mistake can be costly, but this is especially true when it comes to complicated financial issues such as Inheritance Tax liability.

To ensure that you don’t run into any potential pitfalls, you may want to consider working with a financial planner, who has a greater amount of knowledge and experience to draw upon. This can help to prevent you making any accidents when it comes to estate planning.

A professional can help you to use your allowances effectively to reduce your tax bill

When planning your estate, the first thing to be aware of is the total value of your assets, so you know how much tax you would be liable for.

The first tax allowance you need to be aware of is your nil-rate band, which stands at £325,000. You can leave assets up this amount in your will without having to pay tax on them.

The second allowance to bear in mind is the main residence nil-band, which stands at £175,000. If you plan to leave your main residence to your children or grandchildren, this gets added onto your nil-rate band, bringing it up to £500,000.

Please bear in mind, too, that if you have a partner, these allowances are effectively doubled, allowing you to pass on up to £1 million worth of assets if you gift together and leave your main residence to your children.

If the total value of your assets takes you over that limit, your planner can help you to reduce your tax liabilities in a few ways. This may include putting some of your assets into a trust for a loved one, as the value of assets in a trust are not typically counted when assessing liabilities.

Another way they could potentially help you is by ensuring you’re making the most of your gifting allowances, to pass on your wealth in order to reduce the size of your estate. If you want to know more about your gifting allowance, and working with a planner can help you to use it more effectively, read our free guide to find out more.

Working with a planner can help you to make informed decisions, allowing you to save thousands of pounds in tax so you can give more to your loved ones when you pass away.

Get in touch

If you want to know more about how working with a planner can reduce your Inheritance Tax liabilities, please email or call 0115 933 8433.

The Financial Conduct Authority does not regulate Inheritance Tax Planning. The information within this article is based upon our understanding of HMRC guidelines and legislation. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.