Inheritance tax planning

Finding out whether you have an Inheritance Tax (IHT) liability could lead to stronger plans and benefit your family.

For peace of mind, make clear plans for your legacy

Let’s get this out of the way, inheritance tax (IHT) is not just for the super-rich, that’s a popular misconception. It can also be a difficult tax for many to get their heads round though. Nobody likes tax, but what sets IHT apart is that it catches a lot of people out, as they don’t feel it applies to them. Which means they wrongly dismiss it.

What is IHT?

Inheritance tax is a tax on the estate (the property, money and possessions) of someone who’s died. Which means if you plan to leave money or assets after you die, your loved ones could face a tax bill of typically 40% on the majority of everything you own, above your threshold. Research has actually shown that many people are counting on receiving a big inheritance to fund themselves in to retirement. Some 17%1 of adults anticipate getting a significant sum, and nearly two thirds of them are relying on it, despite the risk it might materialise late or never, or be smaller than they hope. Taking the necessary steps now is highly recommended. It'll help reduce any potential IHT liability and the impact of the tax in the event of your death.

Making plans for your legacy

Government statistics have shown that the average inheritance a person can expect to receive is £11,0001. For those aged between 55-64 it is £33,000 and for among over-65s it is £20,000. So getting your ducks in a row is a necessary first step to ensure your family get the inheritance they deserve. Given the current pandemic, the logical place to start is with your estate. Quite simply, your estate is made up of every single asset you own. As well as your home it also includes your car, savings and investments, jewellery, home furnishings, items of notable value and any additional properties you may have. It is important that you work out what your entire estate is worth. You may be surprised by how much there is when you look at the big picture. Make sure you factor every asset into your calculation and remember, your estate value isn’t fixed. Over time the value of your assets may fluctuate and potentially take you over the IHT threshold. To get your current estate figure, you’ll need to deduct any liabilities – such as any mortgage or credit card debt you currently have.

Things you need to know

You are allowed to leave an estate valued at up to £325,000 plus the new 'residence nil rate band' up to £175,000, giving a total allowance of £500,000 per person (although not everyone can benefit from the latter allowance). This means that for estates worth less than this, estates won't pay IHT. • The amount of IHT collected in 2018/19 was up £164m to £5.36bn from the £5.2bn collected in 2017/18. With overall IHT receipts up 42% since 2014-152. • There are many ways to reduce your potential liability, some of which involve making use of annual allowances. • It’s recommended that you seek financial advice to discuss the options available to you.

What are the next steps?

1. Do you need help planning your legacy? You may already know the answer to this, or you might just be unsure. The Mail has partnered with Skipton Building Society to offer a wide range of different appointment options. Given the current situation, Skipton can review your situation over the phone or by video link – you choose what works best for you.

2. Let's talk about your situation

Skipton will discuss whether inheritance tax is likely to affect you and your family. Then go away and create your unique financial plan tailored to your situation. Simple as that.

3. What will happen then?

Your adviser will meet with you again to explain your plan – in plain English. If you decide not to act on it, that's fine. They won’t pressure you into doing anything you don’t want to.

4. Bringing your plan to life

You’ll decide with your adviser how much help you need to put your plan into action and any ongoing support you might need once it’s in place. You'll only be charged if you go ahead with a recommendation, and costs will be explained up front, so no surprises later. It is important to note that some IHT planning solutions put your capital at risk, as you may get back less than you invested. IHT thresholds depend on your individual circumstances and prevailing legislation, both of which may change in the future. Also, most forms of IHT planning are not regulated by the Financial Conduct Authority (FCA).

Order your free reader guide to get started

Skipton’s in-house experts have also worked closely with Mail on Sunday assistant editor Dan Hyde, to provide you with in-depth insight in an easy-to-read way. Dan’s guide to IHT planning breaks down the options for you and highlights your next steps. Skipton will either post the guide to you, or you can download it, free of charge.