Reasons you may need an inheritance tax adviser
Inheritance tax must be one of the most unpopular taxes. You work all your life to build up property and other assets paying tax while you do so. And then when you die, the tax man wants a further slice, and a rather large slice at that! Sickening! Therefore, if you are wondering whether you need an inheritance adviser, read this article to learn more.
Many people believe that the only way to reduce or avoid inheritance tax is to spend all your money or give all your assets away seven years before you die. Admittedly, that may help, however, there may be other less painful ways of reducing the bill. This is where hiring a specialist may help.
What you will learn
- The reasons you may need an inheritance tax adviser
- How specialist advice can help minimise or eliminate this tax
- How an inheritance tax adviser tailors plans to unique circumstances
- Tax-saving strategies an adviser may recommend
- Inheritance tax relief and exemptions you may not know about
- Why professional guidance can improve the efficiency of your estate plan
Do you really need an inheritance tax adviser?
There are no clear answers as each individual or family’s situation differs. As a result, engaging a specialist for an initial consultation will help you understand your requirements.
To get started, here is a short list of reasons you may need an inheritance tax adviser.
- Tailored inheritance tax plans
- Expertise in tax reliefs and exemptions
- Lifetime gifting strategies
- Trust and estate planning
- Guidance around legislative changes
- Avoiding costly mistakes
Ultimately, this is about helping you reduce or eliminate this tax entirely.
Need advice?
Call us now on 020 3740 5856 to request a callback from an experienced adviser.
How could an inheritance tax adviser help you?
Now let us look at the different ways an inheritance tax adviser could help you and your family, in an easy-to-digest Q&A format.
In this section, we cover:
- The process an adviser follows to understand your current inheritance tax position
- Your unique circumstances covering assets, investments and more
- Some of the potential reliefs and exemptions available
- Developing a tailored plan
- Whether you can do your own inheritance tax planning
Related reading: Inheritance tax planning guide
What is your expected inheritance bill?
The first thing an inheritance tax adviser would do is calculate your IHT liability. Remember that this bill is not for you but for the beneficiaries of your estate. The bill may be bigger or smaller than you think. However, knowing the size of the bill would be the first step.
What are your unique circumstances?
The next step would be to understand your personal circumstances, including your assets and liabilities, investments, marital status, any children you may have, an overview of your Will arrangements, businesses and current tax status.
What potential reliefs and exemptions are available to you?
Your adviser should have a good working knowledge of the reliefs, exemptions and legislation surrounding inheritance tax. Widely known legislation such as the nil rate band and the residence nil rate band will be considered.
More specialist areas like Business Property Relief, using trusts to avoid inheritance tax, lifetime gifting and reliefs available to certain investments would all be considered. Furthermore, they will advise on factors such as the seven-year inheritance tax rule, and whether you can put your house in your children’s name to avoid it entirely.
What customised planning strategy would work for you?
The next step would be for your adviser to consider all available options and put together recommendations painting what-if scenarios. Your adviser would go through these options with you, discussing the pros and cons of each option, aiming to avoid the pitfalls and costly mistakes that often come with a lack of knowledge or poor planning.
Remembering your circumstances are unique, any strategies that may be inappropriate will be discussed with you for information or educational purposes but may be discounted or eliminated.
Ultimately, good inheritance tax planning robs HMRC of valuable revenue and they push back where planning is poorly considered. Your adviser should know the tried and tested methods that work, the aim being to reduce the tax liability that your estate would have to pay.
Could you do it yourself?
This is a complex area of financial planning but of course you could. There is a lot of information out there and some would say there is too much information, including misinformation. You would need to do a substantial reading, interpretation and application, a call or two to HMRC and some due diligence! If that is all too much for you, you may want to hand it all over to an expert.
Doing so would give you the peace of mind that things were done correctly, using tried and tested methods that would pass the scrutiny of the tax man. Some would say that the personal guidance of an inheritance tax adviser is invaluable. Not only that, but your adviser would also be there to guide you as legislation changes, as it has done in the most recent budget.
Want the best of both worlds? Then do some research yourself, and then consider engaging an adviser. This would ensure better understanding and more meaningful planning around your personal circumstances.
Do I need an inheritance tax adviser? Quick summary
Inheritance tax planning is complex, but working with an adviser can make a significant difference.
They begin by assessing your potential IHT liability and will take the time to understand your unique circumstances, including assets, liabilities, and long term family wealth goals.
Inheritance advisers identify potential reliefs, such as the nil-rate band, gifting property to children or business property relief. Furthermore, they recommend strategies like lifetime gifting or setting up trusts to reduce your estate’s taxable value.
In the end, professional guidance provides peace of mind, knowing your estate is managed efficiently and your loved ones are protected from unnecessary tax burdens.
Factors to consider
After reading this article, if you are thinking about approaching an adviser, here are some things to consider:
- The complexity of your estate and assets
- Changing tax regulations and the implications for your estate
- The financial and tax-saving goals for your family
- Experience and expertise of the adviser you’re dealing with
- Long-term needs for estate planning and wealth protection
Do you need an inheritance tax adviser?
Hopefully, now you have a clear answer to this question.
Article FAQs
Keen to learn a little more? Have a read of these commonly asked questions on this topic.
What is the current inheritance tax threshold in the UK?
The inheritance tax threshold, or nil-rate band, is currently £325,000. This means estates below this value pay no inheritance tax. For estates exceeding this amount, the value above the threshold is taxed at 40%. Additional allowances, like the residence nil-rate band, may raise the threshold for some estates.
What are the main reasons I may need an inheritance tax specialist?
Here’s a quick recap. A specialist can help reduce or eliminate inheritance tax by offering tailored strategies such as trusts, lifetime gifting, and other reliefs. They also provide guidance to avoid costly mistakes, ensure compliance with complex laws, and protect family wealth. All in all, this will make your estate plan more effective and tax-efficient.
How can I invest tax efficiently?
Alongside reducing IHT, tax-efficient investments, such as ISAs and Venture Capital Trusts can form part of a well-rounded, long-term wealth planning strategy. If managing and reducing taxes is front of mind for you, learning about these options will be of benefit to you.
What is the seven-year rule?
The inheritance tax seven-year rule exempts gifts from inheritance tax if the person giving them survives seven years after the transfer. The gift’s value may be taxed if they die within seven years. Lastly, taper relief reduces the tax rate for gifts made between three and seven years before the individual passes away
What are trusts, and how can they be used to avoid this tax?
Trusts are legal arrangements where assets are managed by trustees for beneficiaries. By placing assets in a trust, you remove them from your estate, reducing your inheritance tax liability. For example, a discretionary trust can hold property or investments, ensuring they pass to beneficiaries tax-efficiently.
Do I need an inheritance tax specialist, or can I use a financial adviser?
Yes, you can use a financial adviser, but it’s important to ensure they have experience dealing with inheritance tax. Ask them to highlight their expertise in estate planning, tax reliefs, and trusts to confirm they have the skills and knowledge needed to handle your inheritance tax needs effectively.
What if I would rather leave some of my money to charity?
Leaving money to charity is inheritance tax efficient. Donations to UK-registered charities are exempt from inheritance tax, and if you leave at least 10% of your estate to charity, the inheritance tax rate on the rest of your estate reduces from 40% to 36%. This benefits both your legacy and your loved ones.
What is the easiest way to pay my inheritance tax bill?
One of the easiest ways to ensure the inheritance tax bill is covered is by setting up a life insurance policy in trust. The payout from the policy is excluded from your estate and goes directly to your beneficiaries, providing funds to cover the tax without selling assets. Of course, we recommend seeking the advice of a professional ahead of making any decisions.
