In this short article, we cover a range of inheritance tax (IHT) FAQs. IHT is a complex topic and often requires long term planning. The focus of this article is to give you some valuable insights and information on IHT, the thresholds, how you could potentially avoid it, and the professional you should engage with on this matter.

Let’s get started.

What is IHT and how does it work?

Inheritance Tax is a UK tax that applies to the assets left behind when someone passes away. The tax is calculated based on the total value of your estate.

Who is responsible for paying an IHT bill and when is it due?

The responsibility for paying an IHT bill falls on the executor or administrator of the deceased person’s estate. IHT is typically due to be paid within six months of the date of death. Late payment of IHT can result in penalties and interest charges, which can increase the overall tax burden.

Can a financial adviser help with IHT?

Yes, a financial adviser can provide valuable assistance with IHT planning, helping you navigate the complexities of the tax and develop strategies to minimize its impact.

Who is exempt from paying IHT?

There are various exemptions and reliefs available that can make certain individuals or assets exempt from paying IHT. Always consult an experienced inheritance tax adviser to understand your position.

What is the current inheritance tax threshold in the UK

The current inheritance tax threshold in the UK is £325,000 per individual. This means that an estate worth less than this threshold is not subject to IHT. This is also referred to as the nil-rate band.

What is the residence nil rate band?

The residence nil rate band is an additional allowance of up to £175,000 per person, which can be used when passing on a main residence to direct descendants. It can help reduce the IHT liability for estates with qualifying property.

What are the best ways to avoid or reduce IHT?

The best ways to avoid or reduce IHT include making use of annual gift allowances, setting up trusts, and taking advantage of exemptions and reliefs provided by the tax laws. Again, always seek professional inheritance tax advice to understand if any of these apply to you.

Who is best to advise on IHT?

When it comes to advice on IHT, it’s best to consult with a IHT planner or financial adviser who specialises in estate planning inheritance tax matters. They can offer personalised guidance based on your financial situation.

What is Business property relief?

Business Property Relief (BPR) is a tax relief that can reduce the value of a business or its assets for IHT purposes. It’s designed to support the continuity of family businesses by lessening the IHT burden.

Can I use Business Property Relief (BPR) to reduce my IHT bill?

Yes, you can use Business Property Relief (BPR) to reduce your IHT bill, provided the business qualifies for this relief according to HMRC guidelines. This is a complex topic, and you should always seek the advice of an experienced professional for guidance on this matter.

Can equity release be used to mitigate IHT?

Equity release, in some cases, can be used as a strategy to mitigate IHT by accessing the value tied up in your home. However, it’s essential to seek professional advice and understand the implications of this approach.

Related reading: Equity release myths busted

Is estate planning the same as IHT planning?

Estate planning encompasses a broader set of financial and legal strategies aimed at managing and distributing your assets, including IHT planning. It involves preparing for the transfer of wealth during your lifetime and after your death.

Can I use a life insurance policy to reduce or avoid IHT?

A life insurance policy can be used as part of an IHT planning strategy to provide funds that can cover the IHT liability upon your death. Again, seek professional advice if you are considering this option.

Can I create a Trust to avoid paying IHT?

Creating a Trust can be a useful tool in IHT planning to manage your assets and potentially reduce the tax liability. Trusts must be structured carefully and in accordance with the tax laws.

What does an IHT adviser do?

An IHT adviser specializes in providing guidance and strategies for IHT planning, helping individuals and families make informed decisions to potentially minimise or avoid tax liabilities.

Related reading: What does an inheritance tax adviser do?

Are there any other ways to protect our family’s wealth?

There are various ways to protect your wealth, including using family trusts, making use of annual gift allowances, exploring pension and investment strategies, and seeking expert advice on effective wealth preservation.

Looking for advice on inheritance tax?

If you are in the process of looking at ways to reduce or avoid IHT, and would like to speak to a professional, call us today on 01329 550 190