Is it Really Possible to Avoid Paying IHT?  

Yes it is! With careful planning, a family's assets can be sheltered from IHT. In essence IHT is a voluntary tax. If you are single, or widowed - and aren't going to re-marry, as long as you leave no more than £312,000 on death then IHT won't attach. This assumes you haven't made any sizeable gifts in the previous 7 years that would have to be added back into the assessment. If you have, and had not previously agreed and recorded that the gift was made free of IHT liability on the recipient, then they will be the ones who have to pay any IHT on its value. But in reality our financial affairs are far from straightforward, and the challenge of IHT planning is that it runs against most peoples aims of maximising their wealth.

Nevertheless, the task of not handing over vast sums of money to the government in tax (that took years of hard work to accumulate) is one more and more people are keen to tackle.  

The following list highlights some of the main ways of keeping IHT in check:-

1. Make full use of your £312,000 Nil Rate Band;

2. Write a Will to crystallize your gifts and overall plan. It may be advantageous to have a Discretionary Trust inserted into the Will to the value of the nil rate band. This would protect the assets from having 'delayed' taxation at the time of your partner's subsequent death.

3. If you want to pass your share of the family home through your Will, then you need to ensure that the Title Deeds show that you own it as 'Tenants in Common' and not as 'Joint Tenants'.

4. Large gifts won't attract IHT if you live for another 7 years, and even after 3 years the rate of tax falls year by year. 'Giving' something away does not just mean changing its ownership, but of usage too. If you continue to enjoy a 'benefit' from the asset concerned, then the gift will probably be disqualified under current 'Gifts with Reservation' or 'Pre-Owned Asset' rules. Lifetime gifts may also attract Capital Gains Tax (CGT). CGT is not payable on assets that transfer after death. Professional advice should always be sought before making large gifts. Consideration must also be given as to whether you can afford to live without the asset you are thinking of parting with.

5. Each of us is allowed to give £3,000 away a year free of any IHT liability. For a couple that amounts to £6,000.

6. Possibly the widest ranging exemption is for 'normal expenditure out of income'. This states that you can give away whatever sum you want, so long as it forms part of a regular pattern of giving, and is sourced from your income. Your usual standard of living should not be compromised and the gifts should not erode your capital. Careful records would need to be kept. This does not just benefit the very wealthy. Any premiums you pay for an insurance policy (or contributions towards a pension scheme) that is for the benefit of someone else count too.

7. Gifts made for the maintenance of your family are free of IHT. This covers the living expenses for 'dependant relatives', and includes maintenance payments that follow from a marriage breakdown, and even payments to support a child through university.

8. Anything you give or leave to your spouse/civil partner, to a UK Registered Charity or to an established political party (in the UK) are free of IHT. So too are gifts made for 'national purposes', being for the benefit of national museums, galleries, universities and community amateur sports clubs. Refer to HMRC for the full list. 

9. Wedding gifts up to certain amounts are free of IHT. For your child, a person can gift £5,000 for their wedding. Or £10,000 in total from both parents. For your grandchild you can give £2,500 (£5,000 from a grandparent couple), and anyone else can give £1,000 free of IHT.

10. You can make small gifts of up to £250 to as many people as you like and they will not attract IHT! However, you cannot combine this exemption with any others. So if you've already made gifts in the year amounting to £3,000, you cannot give the same recipients a further £250.

11. Business and Agricultural Property can usually attract a 100% relief when passing through an estate. Not all Business or Agricultural property qualifies, and reference should be made to HMRC.

12. Where it is not possible to limit the size of an estate, it is worthwhile taking out Life Insurance to cover the expected IHT amount after death. If your life policy is written 'in trust', then the proceeds will pass outside of your Estate to your nominated beneficiaries. Where possible, for IHT purposes, it is best that the beneficiaries are your children rather than your spouse.

13. Options and opportunities for IHT planning are greatest when couples 'equalise' the ownership of assets they hold.

14. Using Lifetime Trusts can keep assets out of your chargeable estate. If you were suitably wealthy, you could transfer assets of the same value as the nil rate band into Discretionary Trusts every 7 years! However, whilst you may have a say as a trustee as to what happens to the assets in the trust, you will no longer 'own' them. Trust law is complex, and professional advice should always be taken if you are considering setting a Trust up. IHT is not always saved.

15. Even after death it is possible to re-write a Will to minimise the affects of IHT! This can be achieved through a 'Deed of Variation'. However, every beneficiary of the Will has to agree to their amended legacy. Where that includes a child, Court approval must also be secured. The variation has to be made within 2 years of death, but if successful the amended legacy is treated as if it had been written by the deceased. IHT is assessed based on the new (more favourable) terms. If you know of any estate that had to pay a large amount in IHT within the last 2 years by virtue of a poorly drafted or out-dated Will, then Contact Us at once to see whether you could get an IHT refund!

16. Lastly, IHT can only be countered by taking positive action. Good intentions must be followed up with actual deeds! We can help you formulate a lasting estate plan, and with all our Wills IHT planning comes as standard. Our Home Visits are also without time constraint... These issues should not be rushed.

Phone 0208 886 2344 to start making a difference. 

The above list of ways to tackle IHT is not exhaustive, and professional advice should always be sought to determine if a course of action suits your wider financial circumstances.