Skip to main content

Are you confident that your wealth would be passed on to your loved ones when you die, fully in accordance with your wishes? Or, will more go to the taxman than is really necessary?

It often comes as a shock to hear that some of your wealth and assets might be subject to Inheritance Tax (IHT) when you pass away. The tax is included on most assets you own personally. This includes savings, most mainstream investments, real estate, and personal possessions. Though planning for this is important for everyone, it is essential for those who own businesses and business property or have foreign assets.

When Do You Pay Inheritance Tax?

Inheritance tax is charged on the value of your Estate in the event of your death, although there are many reliefs and conditions that apply.

Inheritance tax is charged at a rate of 40% on the value of your Estate above the nil rate band.

The nil rate band is your allowance for how much of your wealth you can pass on with no inheritance tax.  For individuals the nil rate band is £325,000.  Married persons and those in civil partnerships benefit from a transferrable nil rate band.  If you are married and leave your entire Estate to your Wife / Husband there is no inheritance tax charged on the first death.  In this instance your assets pass to your spouse along with your nil rate band, giving the surviving spouse a combined nil rate band of £650,000. To find out more about how marriage can affect Inheritance tax, read our article here.

In addition, there is an extra allowance in the form of the Residential Nil Rate Band (RNRB).  This allows individuals to pass on up to £175,000 of the value of your main residence free from inheritance provided certain qualifying conditions are met.  For married couples, the RNRB is £350,000.

The combined effect of the normal nil rate band and the residential nil rate band allows married couples to pass on up to £1m of their Estate with no inheritance tax (£500,000 for individuals).

The First Steps To Inheritance Tax Planning

Inheritance tax planning will depend on your unique personal circumstances, the value of your estate, the kind of assets you have and most importantly, what you want to happen. It’s beneficial to begin by calculating the value of your estate and your current and likely future inheritance tax position. Once you have completed this, you can explore the methods by which you are able to mitigate any inheritance taxes if this is a real concern.

Write a will

The first step to inheritance tax planning is to write up a will. This will express where you want your property to go after you have passed away. You can plan it correctly in order to save a high amount of tax.

Gift money and assets while you are still alive

You can reduce the total value of your estate by gifting your money / assets to your children / grandchildren while you’re still alive. This can include financial gifts or any assets you have that are worth a considerable amount.  Substantial gifts are likely to take 7 years to fall outside of your Estate but there are various allowances available that allow you to make gifts that immediately reduce the value of your Estate.

Pension contributions

It is not so well known that pension funds are deemed outside of your Estate for Inheritance Tax purposes.  An individual can pass on up to £1,073,000 of pension funds tax efficiently (up to £2,146,000 for a couple).  Added to the NRB and RNRB, this allows a married couple to pass on up to £3,146,000 of assets free from inheritance tax if they have fully funded their pensions.


Don’t forget how you plan to spend your wealth.  While you may have an inheritance tax problem today this may well reduce over time when you consider your planned spending in retirement.  There may also be scope for additional lifestyle spending too – have you really ticked off everything off your bucket list?

Set up a trust

Rather than gifting assets directly to your beneficiaries, you might consider gifting your assets to a trust.  This transfers the value of the asset from your Estate to the Trust which is a vehicle controlled by yourself and or your Trustees (the people you entrust to carry out your wishes).  Most gifts into trust will take 7 years to become free form inheritance tax but some types of trust provide immediate relief.

Life Insurance

In these instances, one of the simplest ways to mitigate inheritance tax is to arrange a life insurance policy to cover the inheritance tax liability.  This provides immediate coverage of the inheritance tax provide your heirs with the funds required to pay the tax.

Life insurance is most helpful when planning to eliminate a substantial IHT bill is likely to take some years to fully eliminate the liability.  You may also not feel comfortable gifting if you are early in your retirement in case you may need to rely on the money in later life. The life insurance policy can be cancelled when other planning strategies have either reduced or eliminated the liability.

Inheritance Tax Planning Advice From Us

IHT is a complicated area with a plethora of allowances and options.  At Suttons we can help you understand your current position and what you can do in simple terms to maximise your wealth and what you leave to your family.

We are the Top Rated Financial Adviser Firm in Manchester, recently featuring in the Sunday Times Top Rated Adviser Guide and have over 25 years’ experience helping families plan their wealth and investments.

If you are looking for further help and advice around inheritance tax planning, then please contact us via our contact form or by calling us on 0161 969 1703.

What People Say About Us

“It is refreshing to be able to deal with a firm who are keen to involve my accountant and a solicitor/estate planner to be able to provide the best possible advice for the benefit of myself and family”.