Inheritance Tax planning

One of the simplest ways to lower IHT is by gifting assets during your lifetime, making use of exemptions and reliefs. While many are aware of basic gifting allowances, some options are often overlooked. We help clients balance making lifetime gifts while ensuring they retain sufficient resources for their own needs.

Read our blogs on Potentially Exempt Transfers (PETS) and making gifts from income for more information on lifetime gifting.

Trusts and Family Investment Companies (FICs) offer flexible ways to manage and protect wealth while maintaining some control over assets. They can be appropriate when lifetime gifting directly to beneficiaries is unsuitable or when preserving family wealth across generations is a priority. We work with legal advisers to ensure these structures align with your overall plan.

You can read more on why FICs are a popular investment vessel here.

Passing on the family home is often the most common and sensitive IHT planning question our experts receive. The residence nil-rate band (RNRB) offers an additional allowance to relieve the family home from IHT, but comes with conditions and pitfalls that many miss and is limited in value.

Giving away your family home during your lifetime can be complex due to anti-avoidance rules that apply if you continue to live in the property without paying market rent, meaning the property may still be considered part of your estate for IHT. Alternative approaches or additional steps are often required to see any IHT benefit.

Planning opportunities differ significantly between your main residence and additional properties. For second homes and buy-to-let properties, gifting during lifetime or placing assets in trusts can be effective without the same restrictions as your main residence.

Business Property Relief (BPR) and Agricultural Property Relief (APR) can dramatically reduce or eliminate IHT on qualifying assets:

• APR applies specifically to agricultural land and buildings used for agriculture. It also extends to property and assets owned by an individual which are let to a farmer.
• BPR applies to active trading businesses, including sole traders, partnerships, and most private limited companies. It does not generally apply to businesses that mainly hold investments (such as renting out properties), as passive income is not considered a ‘trading’ activity by HMRC.

Understanding whether your assets qualify requires detailed analysis, and our team can help clarify this to ensure you benefit from these valuable reliefs.

While life assurance policies do not reduce the amount of IHT payable, they are a key part of practical planning by providing funds to cover the tax liability upon death. This can protect your beneficiaries from having to sell assets to pay the tax bill. Life assurance is especially popular with older clients and is often arranged through employers or as part of estate planning strategies.