How can careful estate planning reduce inheritance tax?

May 27, 2022
Author: Hawsons
Inheritance tax estate planning

Could you Legally save £100,000’s on your estate?

In the last tax year, £6.1bn was paid to HMRC in Inheritance Tax (IHT) payments – £700m higher than the previous tax year and according to the Office for Budget Responsibility Economic & Fiscal outlook, this figure could be as much as £37bn over the next 5 years. A scary but realistic outlook for many families in the UK.


What is IHT and what are the thresholds?

For UK residents IHT is a voluntary death tax paid on your world-wide assets. Without careful and strategic planning this will reduce the proceeds of your estate available to your loved ones.  In some cases, making HMRC the largest beneficiary of the estate.

There are certain ‘bands’ available, before any IHT should become payable:

  • Nil Rate Band (NRB) – £325,000 per individual.
  • Residence Nil Rate Band (RNRB) – £175,000 is the amount allowed if you’re leaving residential property to direct descendants.

For every £1 over these thresholds, HMRC will receive the first 40p in IHT!


The BIG Freeze!!!

During the pandemic the UK government spent billions in propping up the economy, Rishi Sunak announced legislation in the finance bill 2021 in an attempt to recoup some of the billions spent, by freezing the existing Nil Rate Bands until 2026 at least. The NRB has been the same level since 2009 and the RNRB was introduced in 2017, which started at £100,000.

The average house price in the UK is now £277,000, £27,000 higher than the previous year figures. In England average house prices now stand at £296,000 according to the ONS.

More and more families are finding themselves caught in an unfortunate position, having to pay tax on assets that have been left to them by their loved ones.


What can you do?

There are various ways in which an individual/couple can reduce the size of their estate, below we mention some of the options.

  • Annual Gift allowance
  • Marriage Allowance
  • Insurance Policy
  • Gifting (directly and trusts)
  • Spend the money
  • Exemption from Income
  • An insurance policy to cover the IHT bill.
  • Investing into shares that qualify for business relief
  • Equity Release – Lifetime Mortgage

Former Labour Chancellor Roy Jenkins famously described Inheritance Tax as ‘a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue. ‘


Risk warning

  • All of the information is based on our current understanding of the relevant legislation and regulations (including drafts) and may be subject to change.
  • Hawsons Wealth Management Limited is authorised and regulated  by the Financial Conduct Authority, Number 586696.
  • Please note that the value of investments and the income derived from them may fluctuate and investors may not receive back the amount originally invested. Past performance is not necessarily a guide to the future. Current tax levels and reliefs may change and the investments and investment services referred to may not be suitable for all investors.
  • Hawsons Wealth Management Limited is registered in England.  Registered No. 3508607.  Registered office: Pegasus House, 463a Glossop Road, Sheffield, S10 2QD


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Hawsons wealth management
Natasha Fathers, Director of HWM

Natasha Fathers

Director of Hawsons Wealth Management Limited, Sheffield

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