Inheritance tax – why you need to act when you are still young

We never have to pay Inheritance tax – or IHT – ourselves.  But our loved ones do – when the taxman takes a share in our wealth before they can take theirs.

He can take quite a lot. Inheritance tax is charged at 40% on estates that are worth over £325,000 – or more, if a home or the sale proceeds of a home are included. It means that those we want to provide for miss out on the money they need.

Rising house prices and general wealth means more and more of us fall into IHT. But at Continuum, we have ways to help reduce your IHT liability, and leave more to those you care about. But the sooner you start, the more effective they can be.

But why should we start thinking about inheritance planning when we still have years before the taxman takes his IHT?

We don’t know what’s around the corner

The first step in any inheritance planning strategy is to make a will – without it, the law of intestacy will dictate who receives what from our estates. This is a particular problem for those with step families, or who live together unmarried, but it will always mean that it is much harder to limit your IHT liability. Around 54% of adults in the UK don’t have a will, probably because it is easy to think that if we are still young, we can afford to wait.

This is a mistake. Accident and illness can strike at any time – and statistically, half of us will die before the average life expectancy. Making a will that reflects the basic principles of estate planning should be a priority for anyone with dependants.

You can pay less for life assurance

But making a will is only part of the solution for inheritance tax. Paradoxically, you may need to look at your life insurance.

Naturally, you will want life insurance to protect your dependants if anything happens to you while you are the breadwinner. But most of us choose term insurance, in an attempt to keep down the premiums.

However, there may be a need for a different type of life insurance, which can provide cover for as long as we keep paying the premiums. Whole of life insurance, as it is known, is naturally more expensive, as it will pay out sooner or later, no matter how old we are. This can be an important advantage if you need to provide for a surviving spouse or other dependents in your golden years, but it has another important advantage. A whole of life policy can be written in trust, which means when it pays out, the money does not form part of your estate when you die. Not only can it be paid without waiting for probate, it can help pay off Inheritance Tax liabilities.

So, whole of life cover might form part of your inheritance planning. But as with most life insurance, the younger and fitter you are when you take it out, the less it can cost.

It’s easier to give cash away

Giving away surplus cash can put it out of your estate, meaning that no IHT is payable. But you must live another seven years after giving the money away to avoid ‘deathbed giving’. So, if you are planning to make a sizable gift to a loved one, you might want to do it sooner rather than later.

Trusts used to be an effective way to deal with tax liabilities. They are less useful than they once were – but they can still have an important role to play in avoiding IHT, if you act soon enough. When you put cash, property or investments into a trust, those assets are no longer yours – they belong to the trust. But as with large gifts, assets placed in trust will only fall outside of your estate for IHT purposes if you live for at least seven more years.

Getting expert help

Whatever the solution you need, getting expert help, and getting it as soon as possible is essential for successful estate planning.

At Continuum, we can make estate planning an integrated part of your wealth management plans – helping you make the most of your money while you are still able to enjoy it, and  ensure that your loved ones can then receive as much of it as possible when the time comes.

The sooner we start, the better off you and your loved ones can be.

Simply call us at Continuum for the help you need.


The information contained in this article is based on the opinion of Continuum and our understanding of current HMRC tax rates and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.

The Financial Conduct Authority does not regulate taxation & trust advice and will writing

The levels, bases and reliefs from taxation are subject to individual circumstances and maybe subject to change



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