Inheritance tax can be reduced with ‘powerful tool’ as 74% unprepared | Personal Finance | Finance

While many are worried about the financial future of the next generation, just 26 percent of the UK’s wealthiest have inheritance tax mitigation strategies in place.

According to a study by Arbuthnot Latham, 45 percent of “High Net Worth Individuals” in Britain worry about their loved ones’ finances, yet only a quarter have made plans for their passing any wealth on.

With more families being pulled into the inheritance tax net, Britons are being urged to be proactive with their estate planning to avoid landing beneficiaries with a huge bill.

To help, Rachel Wyatt, wealth planner at Arbuthnot Latham shared some “powerful” strategies to ensure people leave the legacy they want.

Trusts

Ms Wyatt said: “Trusts can be a powerful tool for giving gifts to your chosen beneficiaries. By appointing yourself as a trustee and writing a letter of wishes, you can maintain control or influence over the distribution of income and capital.”

Ms Wyatt added that certain trusts “offer an excellent way” to reduce the amount of taxes loved ones pay when receiving an inheritance, as well as provide safeguards on how beneficiaries can access the gift.

She continued: “A wealth planner can guide you through the intricacies of trusts and help you navigate this practical wealth management approach.”

Lifetime gifting

Some gifts can be made each tax year, and immediately fall outside a person’s estate for IHT purposes, provided they qualify and are made outright.

Ms Wyatt said: “These include an annual gifting allowance of £3,000, gifts of up to £5,000 from a parent to a child upon marriage or civil partnership, and regular gifts from excess income.

“You can also give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.”

However, Ms Wyatt noted: “Gifts in excess of these allowances will only be tax-free if you live for seven years after making the gift.”

Pensions

Pensions are an important wealth planning tool as they are outside of people’s estate for inheritance tax purposes, Ms Wyatt said.

Ms Wyatt added: “They are also one of the most efficient investment vehicles.”

However, she said: “There are many elements to consider from risk appetite to when and how you might want to access your these funds. There is no ‘one-size-fits-all’ approach and professional financial advice is key to ensuring your estate planning strategy is designed to meet your future financial and lifestyle goals.”

Business relief

Business relief presents an opportunity to incorporate tax-efficient planning into a person’s overall strategy.

Ms Wyatt explained: “This relief applies to assets that meet specific conditions and can be valuable to your wealth management plan. Bringing in specialist wealth planning expertise can assist you in leveraging this relief effectively.”

While putting strategies to reduce inheritance tax in place now can help ensure the wealth of future generations, Ms Wyatt said it’s important that families discuss the transfer sooner rather than later to maintain this wealth long-term

Ms Wyatt said: “Many people feel uncomfortable talking in any detail about inheritance and too often it’s not discussed. The danger with this approach is no one achieves their desired outcomes.

“An estate plan gives you the tools to have a proper conversation, removing uncertainty and empowering your beneficiaries to plan efficiently themselves.”