Inheritance tax and trusts

For most of us, protecting our savings for those we leave behind is a priority, even if it means making tough decisions today. In this world nothing is certain but death and taxes.

With trusts and inheritance tax planning – and the right advice – you can avoid making the taxman your largest beneficiary when you die. So, to make sure that the right people benefit from the estate you leave behind, it makes good sense to organise your taxation affairs well in advance.

What is your estate?

Your estate is basically everything you own. This includes any property, such as your home, your car, your life assurance policies and any other investments. It also includes any valuable items such as jewellery.

Inheritance tax (IHT) will be charged on your estate when you die and anything above a tax-free allowance level known as the ‘nil-rate band’ (currently £325,000) is taxed at 40%.

How can you limit your inheritance tax liability?

  • Make a Will. By writing a valid Will you can make sure that your estate goes to the people you want it to.
  • Transfer unused tax-free allowances. Spouses and civil partners can inherit from each other without paying inheritance tax. Your executors may also use any unused nil-rate band from your deceased spouse or civil partner’s estate.
  • Make gifts. The tax rules allow you to make certain gifts out of your estate that are immediately exempt from tax and others on which the inheritance tax liability reduces gradually. Any gift made more than seven years before your death is exempt from inheritance tax.
  • Use a trust. A trust is an arrangement that can help you to remove money from your estate so that it may not be liable for inheritance tax in the future. There are different types of trusts for different circumstances. Some trust arrangements even allow you to receive a regular payment from your investment during your lifetime.

Get expert advice

There are many approaches to reducing your IHT liability, such as those shown here. Some are more complex than others and may not be suitable for you, so it is always important to get professional tax advice. For such advice you can contact Loveth Watson (Tax Manager) on 01733 305163 or email her at:

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