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Everything You Should Know About Inheritance Tax Planning

Everything You Should Know About Inheritance Tax Planning

Inheritance tax, also known as estate tax, can end up costing your loved ones huge sums of money in the event of your death. Of course, you want to make sure your nearest and dearest are financially protected when you are no longer here. However, without knowing about inheritance tax the opposite could occur.

The inheritance tax threshold is £325,000. If your estate amounts to more than this, then you will pay 40 per cent tax on anything in excess of £325,000. Your estate is calculated by taking into account any property or businesses you own, investments, your cash in the bank, pay-outs from life insurance policies and vehicles.

Top estate planning tips to avoid paying inheritance tax / lower the amount you need to pay:

  • Leave money to charity – Leaving money to charity is a great way to reduce the amount of inheritance tax you pay. Charity contributions are tax-free. Moreover, if you leave 10 per cent of your estate or more to charity then you will only be subject to 36 per cent tax as opposed to 40 per cent.
  • Put things into a trust – Anything that goes into a trust is no longer part of your estate. This is something professionals like Newbold Solicitors can assist with. Are you thinking about leaving money to your grandchildren? Instead, you could set up a trust for them. You can thus put any of your cash, investments or property into this trust and consequently, you will avoid inheritance tax on anything included.
  • Give to your loved ones – If you give money to a family member or friend (aside from your partner) you will not have to pay inheritance tax on the amount once seven years have passed. Please note that there is a yearly limit on the amount you can give without having to pay tax.
  • Gift to your partner – You can give anything you own to your spouse or civil partner and you will avoid paying inheritance tax on the value of the gift.
  • Take out a life insurance policy – As mentioned earlier, life insurance policies can be subject to inheritance tax. However, the reason why this is a tip for lowering the amount of tax you pay is that the cash-out could give your family a greater amount of money to assist with any inheritance tax they are subject to once you pass away. Nevertheless, to avoid paying inheritance tax on the actual policy you need to make sure the life insurance policy goes into a trust. This is where professional financial management really shows its worth.


All in all, the importance of devising an estate plan in case of death cannot be stressed enough. It is vital to have professional assistance, so you can ensure everything is validated and handled correctly.

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