Adviser’s Top tips to reduce IHT liabilities

Date: 28 Jul 2023

Karen Jones

Shaun Robson, head of wealth planning at Killik & Co has provided his top tips to reduce the amount people are liable for.

How to reduce IHT liabilities? Shaun Robson, Head of Wealth Planning at Killik & Co said:

“Inheritance tax (IHT) has been a big earner for HMRC this past tax year, due in part to assets remaining high in price and thresholds staying frozen. It is likely to be a record year of IHT, and even if the future of it is seemingly up in the air, people should be considering action to reduce their tax liabilities as many families could be handed a surprise tax bill.”

Shaun’s top tips for reducing IHT liabilities:

Write a Will

Writing a Will is one of the simplest ways to be certain that your wishes are followed with regard to who inherits your estate. It allows you to plan for and minimise your IHT bill. Without a Will in place, the complex ‘laws of intestacy’ automatically govern how your estate will be distributed and may not reflect what you would choose to do yourself.

Gifting regularly and early

For those who are planning to gift financially to their loved ones, doing this regularly and as early as possible is key to reducing IHT. There are no limits on the number of gifts you can make. You are entitled to give up to £3,000 per tax year split between as many people as you like, without incurring penalties or tax. This is known as your ‘annual exemption’ and you can carry any unused to the next tax year (for one tax year only). You can also make unlimited smaller gifts of up to £250 as long as you have not used another allowance on the same person. You could also look to gift larger amounts under the seven-year rule, providing you survive for seven years post-gifting this will be free from any IHT. Giving away assets while you are alive requires careful financial planning to work out how much you can afford to give away, whilst ensuring that you have enough to meet your own needs for the rest of your life.

Using a trust

A slightly more sophisticated way, but equally efficient, is by using trusts to protect the amount you wish to pass on. Depending on the type of trust used, the asset gifted into trust no longer belongs to you, but you may retain some control over who benefits and how the money is used. As a result, assets in trust may not be included in your estate for IHT. A trust is a separate legal entity and can have their own tax charges and costs which need to be considered versus the IHT benefits. There are many different trusts so it’s best that you speak with your financial adviser about which one may be right for you.

Invest tax-efficiently

Alternative Investment Market (AIM) shares are often overlooked as an investment option, but as some of the companies qualify for Business Relief it’s something to consider when it comes to IHT. Due to the relief, an IHT saving of 40% on the portfolio value of qualifying shares can be made if they’ve been held for at least two years.

If you are contemplating this, it is important to note investments can go up as well as down, and to seek advice to ensure this is the right way to reduce your IHT liability.

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