Inheritance Tax - What Do You Need to Know?

For those that came to our AGM and Landlord Conference back in May, you will have potentially seen and heard from one of our speakers, Michael Duale from MD Wealth Management.  We are pleased to share his thoughts as this week’s guest writer where he discusses Inheritance Tax and what to be aware of.

Michael Duale, MD Wealth Management

"There are few more confusing – or unpopular – taxes than Inheritance Tax (IHT). If you’re unsure of the details, or you’d like more of your inheritance to go to your family and less to the HMRC or on care fees, it is best to get professional help.

Leaving loved ones to incur up to a 40% reduction due to tax on their inheritance is a hard ask. Yet despite many children and grandchildren being ill-equipped to grapple with IHT, more and more families are having to deal with it. It’s a situation that is set to continue, with the Office of Budget Responsibility forecasting that IHT revenues will reach £8.4 billion by 2026/2027.

In better news for your family, there’s been a staged increase in the residence nil-rate band threshold, which is now set at £175,000 for those who qualify when passing their main residence to direct lineal dependants. This goes some way to reflect the growth in property prices, as well as other asset values, which together have dragged more households into the IHT net.

Nevertheless, it can come as a shock to discover that a large proportion of your wealth, which includes the family home, investments such as Individual Savings Accounts (ISAs), life assurance plans not in trust and even old family heirlooms, might have to be sold to meet tax bills when you die.

So what exactly could your family be liable for?

We’ve already discussed the residence nil-rate band threshold of £175,000. Then you can factor in that the first £325,000 of your estate is likely to be exempt from IHT. This means that, subject to various conditions, if you’re married or in a civil partnership, you could have a tax-free estate worth £1,000,000.

Yet the simple fact is that IHT could be considered a voluntary tax. The Treasury relies on our inertia and reluctance to confront the issues of death and inheritance. To make things worse, the Treasury’s coffers are boosted at the exact time your loved ones least need the added hassle.

There are many perfectly legitimate ways to mitigate IHT through foresight and careful financial planning. You don’t need high-powered tax planning, just a willingness to discuss the issue, act and make use of the many options available. These include establishing trusts and making use of annual exemptions such as gifting.

MD Wealth Management is a Financial Planning Service in East Anglia

Bear in mind that if you’re domiciled, or resident, in the UK, IHT rules are complex. Certain transfers are deemed exempt from the tax if they pass between a husband and wife or civil partners. The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Trusts are not regulated by the Financial Conduct Authority".

Michael Duale

MD Wealth Management

APFS - Chartered Financial Planner