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Louise Crush of Westgate Wealth Management highlights some of the ways you can cut your IHT bill
Having established yourself at the Bar, built up assets and with a family spanning potentially multiple generations, the last thing you will want is to pass this wealth to HMRC. Yet, the average inheritance tax (IHT) bill per individual is £215,000(1) and between April to August 2024, HMRC received £3.5 billion in IHT receipts.(2)
IHT can be tricky to understand, with a multitude of allowances and exemptions. In essence, it is a tax on your estate, which includes your property, money and possessions. The current standard rate of IHT is 40%. IHT is charged on your estate above the current threshold, known as the ‘nil-rate band’, of £325,000. An extra threshold may be available to you – of £175,000 – known as the ‘residence nil-rate band’. We also have to consider any lifetime gifts and whether these form part of your estate on death. Following the Autumn Budget, personal pensions will form part of your taxable estate from 2027.
Drawing up a will, or reviewing your existing one, is the easiest and most effective way to express how you want your wealth to be distributed when you die. Without a will, your assets will be distributed on your behalf and potentially liable to IHT that might otherwise be avoided. Yet, 56% of adults do not have a will in the UK.(3)
Gifting is an extremely rewarding way to mitigate an IHT bill. However, making sure you keep a record of these gifts, and are mindful of the order and type of gifting, is essential to ensuring they are effective in reducing the value of your taxable estate.
Pensions are a great way to save for retirement, especially with the tax relief available to higher earners. While they currently fall outside of your estate on death, a proposal in the recent budget means that this will probably not be the case in future. We can continue using pensions for their additional benefits, but now need to consider the most appropriate funds from which to draw an income, thus reducing estate size, while ensuring funds that can be protected for future generations are ringfenced as the last resort.
One option to help you mitigate a future IHT bill and reduce stress on your family is to take out a life assurance policy whereby the sum assured covers any predicted tax bill. It is essential to write this policy in trust, to ensure that the proceeds fall outside your estate and are not subject to IHT.
Investment trusts can provide more flexibility and control than a will on its own, because they place the right money in the right hands at the right time. If you place your assets into a trust, they will not usually form part of your estate, and so will be exempt from IHT after seven years. By using the appropriate trust, you can also ensure that your wealth has the potential to continue growing and you can retain access, as required, to an income.
Your pension can be placed into a bypass trust, such as our Legacy Preservation Trust, and becomes a legacy which can be passed down through future beneficiaries without forming part of their estate.
Make sure you don’t leave it too late. We can help identify your current IHT liability and the methods most relevant to your estate, implement the best actions based on your wishes and keep these plans under review as fiscal policy changes. Contact us on:
References: (1) HMRC Inheritance Tax Liabilities Statistics: commentary, GOV.UK, July 2024; (2) HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin), GOV.UK, 2024; (3) The National Wills Register, 2023.
Westgate Wealth Management Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The St. James’s Place Partnership and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. SJP Approved 26/11/2024
Louise Crush is a Chartered Financial Adviser at Westgate Wealth Management, Senior Partner Practice of St. James’s Place. Called to the Bar in 2015, Louise has built a specialist practice advising members of the Bar nationally and provides financial education services for chambers.
Westgate Wealth Management Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The St. James’s Place Partnership and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
Having established yourself at the Bar, built up assets and with a family spanning potentially multiple generations, the last thing you will want is to pass this wealth to HMRC. Yet, the average inheritance tax (IHT) bill per individual is £215,000(1) and between April to August 2024, HMRC received £3.5 billion in IHT receipts.(2)
IHT can be tricky to understand, with a multitude of allowances and exemptions. In essence, it is a tax on your estate, which includes your property, money and possessions. The current standard rate of IHT is 40%. IHT is charged on your estate above the current threshold, known as the ‘nil-rate band’, of £325,000. An extra threshold may be available to you – of £175,000 – known as the ‘residence nil-rate band’. We also have to consider any lifetime gifts and whether these form part of your estate on death. Following the Autumn Budget, personal pensions will form part of your taxable estate from 2027.
Drawing up a will, or reviewing your existing one, is the easiest and most effective way to express how you want your wealth to be distributed when you die. Without a will, your assets will be distributed on your behalf and potentially liable to IHT that might otherwise be avoided. Yet, 56% of adults do not have a will in the UK.(3)
Gifting is an extremely rewarding way to mitigate an IHT bill. However, making sure you keep a record of these gifts, and are mindful of the order and type of gifting, is essential to ensuring they are effective in reducing the value of your taxable estate.
Pensions are a great way to save for retirement, especially with the tax relief available to higher earners. While they currently fall outside of your estate on death, a proposal in the recent budget means that this will probably not be the case in future. We can continue using pensions for their additional benefits, but now need to consider the most appropriate funds from which to draw an income, thus reducing estate size, while ensuring funds that can be protected for future generations are ringfenced as the last resort.
One option to help you mitigate a future IHT bill and reduce stress on your family is to take out a life assurance policy whereby the sum assured covers any predicted tax bill. It is essential to write this policy in trust, to ensure that the proceeds fall outside your estate and are not subject to IHT.
Investment trusts can provide more flexibility and control than a will on its own, because they place the right money in the right hands at the right time. If you place your assets into a trust, they will not usually form part of your estate, and so will be exempt from IHT after seven years. By using the appropriate trust, you can also ensure that your wealth has the potential to continue growing and you can retain access, as required, to an income.
Your pension can be placed into a bypass trust, such as our Legacy Preservation Trust, and becomes a legacy which can be passed down through future beneficiaries without forming part of their estate.
Make sure you don’t leave it too late. We can help identify your current IHT liability and the methods most relevant to your estate, implement the best actions based on your wishes and keep these plans under review as fiscal policy changes. Contact us on:
References: (1) HMRC Inheritance Tax Liabilities Statistics: commentary, GOV.UK, July 2024; (2) HMRC tax receipts and National Insurance contributions for the UK (monthly bulletin), GOV.UK, 2024; (3) The National Wills Register, 2023.
Westgate Wealth Management Ltd is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The St. James’s Place Partnership and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives. SJP Approved 26/11/2024
Louise Crush of Westgate Wealth Management highlights some of the ways you can cut your IHT bill
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