Inheritance tax (IHT) was once famously described as "a voluntary levy paid by those who distrust their heirs more than they like the Inland Revenue" by Roy Jenkins, a former Chancellor of the Exchequer.
When Gordon Brown was Chancellor of the Exchequer, he called IHT a "voluntary tax" because he said there were many ways to avoid it.
It is clear, however, that not everyone has taken this message on board. The details of the estate of a well known and recently deceased figure in the world of entertainment were recently published. In the will, £15 million was to be divided between her three children. Each son will receive just over £3 million but the biggest beneficiary will be the Exchequer in the shape of a huge tax bill of nearly £6 million.
The billions that could be saved
The Office for Budget Responsibility released figures in 2014 which estimated that one in ten deaths would be subject to inheritance tax in the 2018/19 tax year. This number is eventually expected to reduce as a result of the new main residence nil-rate band introduced in the Summer Budget 2015, but the Exchequer is still expected to receive receipts of around £5.6 billion of IHT a year by 2020/21.
If you aim to take advantage of the voluntary nature of IHT, it is essential to do your tax planning in good time. That means starting now (as soon as possible) because most of us cannot foresee when we are going to die.
Start your estate planning
The first step is to make an appointment with us and put together a plan of action. This is likely to involve a number of aspects of your financial arrangements, such as making sure you have an up to date will in place, identifying which of the various exemptions you can use, and perhaps giving away assets now so that you see your heirs enjoy them during your lifetime. Personal pension funds have taken on a new role in IHT planning due to recent changes, and it can sometimes make sense to delay taking benefits from these. Your adviser will also look at using trusts. Where ordinary ISAs form part of your estate on death, they can be converted into AIM ISAs which fall outside of your estate after you have held them for two years. There are schemes which make use of business property relief, and life assurance placed in trust is essential where you are not in a position to give much away.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate estate planning or tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
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