Inheritance Tax 

How to limit your clients' exposure to inheritance tax

How to limit your clients' exposure to inheritance tax

Advisers need a range of solutions to help limit clients' inheritance tax liability, a tax adviser has claimed, as HM Revenue & Customs reported a record high intake of £5.2bn receipts for the last tax year.

The high value of inheritance tax (IHT) receipts has been put down to the UK economy continuing to rise from the ashes of the economic crisis and the fact that the nil rate IHT band has been frozen at £325,000 since 2010/2011.

Had the nil rate kept in line with inflation, it would be more than £422,500, meaning less money for HMRC.

With people living longer, and as the economy improves, the odds look favourable for the tax office, which will benefit as the value of estates rises. All of this highlights the need for advisers to be able to offer solutions designed to limit their clients IHT liability.

Jackie Hall, tax partner at RSM said: “While death itself cannot be avoided, an individual can plan their tax affairs to ensure that their family and other beneficiaries benefit more from their estate at death than the taxman.”

She pointed to various options to consider, when planning a tax efficient approach to end-of-life financial planning. 

These include making a will that is both tax efficient and sets out clearly the wishes of the client so family and beneficiaries are not faced with ambiguities when the estate owner dies.

A review of the various reliefs available, such as the exemption of transfers to the surviving spouse or civil partner, should also be undertaken, she said.

Ms Hall also recommended considering agricultural property relief and business relief (formerly business property relief), which allow some assets to be passed on free of IHT.

The tax specialist also advocated exploring the potential benefits of making charitable gifts. However, she warned that although many estates take advantage of charitable giving, only one in five can qualify for the reduced IHT rate of 36 per cent by gifting more than 10 per cent of their estate.

Martin Bamford, chartered financial planner for Informed Choice, said: “Inheritance Tax is high up most people’s agendas. One issue which frequently arises with clients is giving money away.

"Many clients are uncomfortable about this, fearing they may gift too much and be left destitute later on.

"We use cash flow forecasting to show different scenarios, so people can be confident in the decisions they take. Many appreciate the benefits of giving money away, and enjoy being around to see the happiness it brings.”