There are lots of different ways your client can reduce their potential IHT liability, not all of which involve using trust arrangements.
Click on each heading to find out more:
Making a will
| If your client hasn’t updated their will for some time, or hasn’t made one at all, they should do this now, as a well-written will is the first step in effective estate planning. There are some quite complex rules that apply when people die without making a will. Our Rules of intestacy factsheet gives more information on these. |
Identify their biggest asset
| For many people this will be their house. The client could consider an equity release scheme to free up funds to use for IHT planning. To help your client identify the value of their estate and any potential IHT liability, see our client IHT calculator. It’s important to remember that any savings the client has in PEPs or ISAs will lose their tax-free status on their death as they can’t be put in trust. See our When’s tax free not tax-free? leaflet for more information. |
Making the most of the nil rate band
| Only estates above the nil rate band (£325,000 for 2009/2010 tax year) are subject to IHT at 40%. And the rules mean that a client can take advantage of any unused allowance on the death of their spouse or civil partner. Our Transferring the nil rate band factsheet gives more information. |
Making the most of exempt transfers
| Clients can make certain transfers or gifts that will immediately reduce their IHT liability. See our Making use of exempt transfers factsheet for more information. |
Investing in an onshore or offshore bond
| Your client can reduce their IHT liability by investing in a combination of a trust and an onshore or offshore bond. This can be a very effective way of IHT planning and even if their choice of trust means they can’t access the money, they’ll still want their investment to benefit those who it’s meant for. See our Investing in an onshore or offshore bond factsheet leaflet for more information. |
Helping their family pay an IHT bill
| Your client could consider a whole-of-life insurance plan and put it in trust, which makes sure the money is available to pay the tax bill. And this might be even more useful where the client has a child still living in their home when they die. Having a life assurance plan in place will mean the child won’t need to sell the house to pay an IHT bill. |
Spend the money
| This sounds an easy step, but is it? Clients generally want to leave wealth to their family, so spending it now might not be an option. But if they do decide to spend, they need to make sure whatever they buy is worth nothing once they've enjoyed it, for example holidays. Otherwise, it will form part of their estate and be liable for IHT. |