Things you can do to reduce or eliminate your inheritance tax bill

* - Spend it or give it away at least seven years before death. The money we have usually provides an income or is tied up in our homes. Since most of us don't know when we are going to die spending or giving it away is not normally a practical solution.

* - Leave it to registered charities (such bequests are exempt of tax).

* - Invest some of your liquid assets in trust governed instruments, such as life assurance or investment bonds. These also constitute potentially exempt transfers but without immediate ownership passing to the nominated beneficiaries.

* - Give instructions for a Family Heirloom Trust to be set up in your Will, utilising your personal allowance and giving away up to £325,000 on each death. This will save your beneficiaries £130,000 Tax and if included in a nil rate band Discretionary Trust, the money can still be made available to the beneficiary. The survivor has access to the income from the trust and could be granted the right to take interest-free, lifetime loans from the Will trust.  Planning has to be done whilst you are both alive in order to set up the Trust on first death.  Careful consideration has to be given to making Wills and still using a Family Heirloom NRB discretionary trust within the Will as the main vehicle for mitigating inheritance tax.

[There is an argument that by using a NRB trust within the Will, the survivor’s estate could lose some of the NRB allowance and the NRB will rise by around 3% each year. We know that by 2010 the figure per person will be £350,000 (£700,000 per couple) whilst under this government, and so there could be a loss to IHT on the difference (the rate today is £325,000 a difference of £25,000 per person) a loss of possibly £10,000, but the trust would have been earning interest hopefully at a rate greater than 3% so these losses should be minimal and counteract each other.]

* - Accept the liability and pre-fund it by way of a joint life second death whole of life assurance. The policy is written into trust and therefore owned by your beneficiaries. The proceeds are paid direct to them on death and used to pay the tax.  There is an argument that the premiums are another way of paying the tax in advance during your life.

  - or of course, your beneficiaries could always pay the bill!

It's OK swimming in the Inheritance Tax sea so long as you take steps to avoid being stung. Inheritance tax can be avoided provided professional guidance is taken.

There could also be income tax & capital gains tax implications when setting up the trust (after 1st death) which should be considered. 

Call Legacy Legal Services

Will Writing; Trusts; Estate Planning

Tel: 0800 959 6171