Strategies to protect your wealth for the next generation
Inheritance Tax (IHT) is a tax on the estate of someone who has died, including all property, money, and possessions. Currently, IHT is charged at 40% on the value of an estate above certain thresholds.
Nil-rate band: £325,000 per person (£650,000 for married couples)
Residence nil-rate band: £175,000 per person when passing the family home to direct descendants (£350,000 for couples)
Combined allowance for couples: Up to £1,000,000
You can give away up to £3,000 per year tax-free. Larger gifts may become exempt from IHT if you survive for seven years after making them (known as potentially exempt transfers or PETs).
If you own a trading business or shares in an unlisted trading company, you may qualify for 50% or 100% relief from IHT on the value of those assets. This can be a powerful way to reduce your IHT liability.
Trusts can be an effective way to pass on wealth while potentially reducing IHT. They allow you to control how and when assets are distributed to beneficiaries.
A life insurance policy written in trust can provide funds to pay an IHT bill without increasing the value of your estate.
Gifts to UK registered charities are exempt from IHT. If you leave at least 10% of your net estate to charity, the IHT rate on the remainder is reduced from 40% to 36%.
One of the simplest strategies is to spend your wealth during your lifetime. Money spent on holidays, experiences, and gifts to family reduces your estate and may help your loved ones when they need it most.
Every family's situation is unique, and what works for one person may not be suitable for another. When considering IHT planning:
If you own a business, you have additional planning opportunities. Business Property Relief can provide significant IHT savings, but it's essential to structure your affairs correctly. Consider:
While this information provides a general overview, your specific situation deserves tailored guidance. A qualified advisor can help you create an IHT strategy that works for your unique circumstances.
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