Inheritance Tax

Inheritance Tax is unavoidable for many, but there are many legitimate strategies for effectively cutting the bill or even negating it completely.

Springfield Financial can help build a plan for cutting your Inheritance Tax bill so you can pass on the maximum possible value of your estate.

What Is Inheritance Tax?

The current inheritance tax rate is 40% of the value of an estate with a tax-free allowance of £325,000, which is known as the nil-rate band.

This allowance has not changed since 2010-11, but in 2017, new rules added an additional £175,000 tax-free allowance that applies only when a property is left to a direct descendent. How much Inheritance Tax your beneficiaries pay depends on many other variables, some of which are difficult to predict without professional Inheritance Tax or estate planning.

Generally speaking, though, once the estate surpasses £325,000 then Inheritance Tax (IHT) is a key consideration of anyone who is conscious of the value their family or beneficiaries receive from their estate. It’s nearly always possible to take action to reduce any ensuing bills, and doing so can even unlock more money to enjoy in your own retirement.

Currently, £500,000 is the largest sum that can be inherited tax-free, assuming that the estate is worth £500,000 and includes property, thus taking up the original nil-rate allowance of £325,000 and the new property allowance of £175,000. This is assuming that there is no other cash or value in anything else other than the property

Inheritance Tax and Probate

If you have made a Will, you may have named someone as the Executor of your estate. The role of the executor may also be shared, in which case there will be joint executors. Probate is the responsibility of the executor(s) and involves executing the Will to fulfil the wishes of the deceased. The probate process also involves making a valuation of the estate, which includes working out what Inheritance Tax is due. Probate can be straightforward where there is a clear, professionally written Will and all beneficiaries agree on its terms or specifications. For complex estates, it’s highly advisable (or sometimes essential) to appoint a probate solicitor to act on behalf of the executor(s).

  • Stage 1 of Probate: Stage 1 involves the identification of all assets and liabilities to calculate the total value of the estate. Identification is gathered from the verified beneficiaries of the Will.
  • Stage 2 of Probate: If there is a Will, a grant of probate or grant of administration will need to be obtained depending on whether the deceased left a Will. Inheritance Tax is usually payable before probate is granted, and before the estate is administered. If this involves the sale of property, shares, businesses or some other assets then HMRC will likely accept staged payments. It is only then that a Grant of Probate or Grant of Administration is issued, at which point the estate can be fully liquidated.
  • Stage 3 of Probate: Stage 3 involves the liquidation of all assets and settling up any other tax, like Capital Gains Tax or Income Tax. If the income tax bill was overcalculated, HMRC will provide a rebate.
  • Stage 4 of Probate: Estate accounts and payments are prepared and verified. Providing there are no objections or challenges, the estate is then distributed and transferred to the beneficiaries.

Reducing Inheritance Tax

Reducing Inheritance Tax There are many valid ways to reduce Inheritance Tax, including:

  • Making gifts
  • Passing on your pension whilst drawing retirement income from different sources
  • Using life insurance to cover IHT
  • Using tax-efficient investments to benefit from Business Relief
  • Using trusts in association with IHT planning
  • Utilising pensions for IHT planning

Springfield Financial are adept at exploring the best methods available for you to reduce your IHT bill. Doing so will save your beneficiaries money whilst also potentially unlocking additional money for you to spend in later life.

Inheritance Tax on Gifts

Gifting may appear to be one of the easiest ways to avoid IHT by simply giving your money away until your estate no longer incurs any Inheritance Tax.

Unfortunately, it’s not quite as straightforward as that. Whilst some gifts are tax-free, e.g. between spouses and civil partners, other gifts may incur tax or count towards your estate depending on when they were made. Most gifts will remain tax-free (subject to normal gifting limits) if they were made more than seven years from the date of death.

Gifting to reduce IHT is still an excellent way to reduce tax bills, provided it is done properly with due care and attention to the relevant rules and regulations.

Inheritance Tax Planning

Planning your finances to reduce Inheritance Tax is especially prudent for large or more complex estates, but it can benefit anyone whose beneficiaries are likely to pay IHT.

Established in 1979 and based in Preston, Springfield Financial are Inheritance Tax specialists with over 100 years of collective experience. We are Chartered Financial Planners as designated by the Chartered Insurance Institute (CII), which certifies our exceptional level of customer service and dedication to ongoing professional development in our field.

Get in touch with us today to discuss Inheritance Tax planning and explore how you can reduce a forthcoming IHT bill.