Inheritance Tax is often viewed as the most invidious tax as it is paid on value accumulated over a lifetime which has already been taxed as it has been earned.. People object to their life savings or family home being passed to the taxman.
A properly drafted Will can often minimise the impact of Inheritance Tax and ensure that the minimum amount of tax is paid overall taking into account all the relevant family circumstances. The use of trusts can also ensure that wealth is preserved for the next generation and that assets are retained within the family rather than being diverted or diluted amongst non-family members.
There are also ways of minimising Inheritance Tax during your lifetime including the use of annual allowances, lifetime gifts and a useful exemption known as “regular gifts out of income”. This allows a person to give away any amount of income which is surplus to his or her requirements. There are a few traps in this exemption so specialist advice needs to be taken and a paper trail needs to be put in place to ensure that the exemption can be claimed on death.
Life assurance can also help to mitigate the impact of any Inheritance Tax. For example, where a client is not married, life assurance can be essential in ensuring that any surviving partner can continue to live in the home without having to sell it to pay a tax bill.
The establishment of trusts for children and grandchildren can allow you to retain control over assets as a trustee whilst taking value out of the Inheritance Tax net. Specialist trusts and tax advice is needed to ensure that structures are workable and tax efficient.