Estate Planning

Estate Planning is not regulated by the Financial Conduct Authority.

As Benjamin Franklin said, nothing is certain in life except death and taxes. Thanks to the government you can have both at the same time, in the form of inheritance tax (IHT).

As you probably know, inheritance tax is payable on the value of your estate (assets minus liabilities) when you die. To make life more complicated, it can also be payable on gifts you make when alive.

If you are single or divorced current UK legislation allows the first £325,000 (2017/2018 Tax Year) of your estate to be free from Inheritance Tax, or £650,000 if you are married in a civil partnership or widowed (providing no previous gifts were made by the deceased spouse). With the recent boom in house prices the value of your estate could have increased even more.

‘IHT’ is charged at a flat rate of 40%. If the value of your estate was £500,000 and you were single, the tax bill would therefore be £70,000.

The important point is that your assets are deemed to include not only possessions, but also any gifts you made within the last 7 years of your life (so that you can’t simply give away all your possessions on your death bed). It used to be possible to mitigate some tax by giving your house to your children while continuing to live in it, but this now requires
careful planning.


There’s a simple way of mitigating inheritance tax – give away your entire estate to charities. In other words, two of the simplest inheritance tax exemptions are transfers to charities and political parties and transfers between husbands and wives, provided that both are domiciled in the
UK. In most cases this is now automatically transferred.

There are also various annual exemptions related to small(ish) gifts. Very broadly speaking you can give away up to £3,000 each year, or lots of gifts of £250 to different people. There are separate exemptions related to marriages – you can give a bride or groom larger sums on or before the date of their marriage, with different levels for gifts from
parents, grandparents, and everyone else. Unfortunately, the complexity of these exemptions makes it essential to get professional advice.


What’s the worst sort of gift? Answer: one you have to give back. If you receive a gift from anyone who then dies within seven years, this may give rise to an inheritance tax liability. The source of this legislation is an attempt to prevent people evading inheritance tax by simply giving away their possessions. Therefore, when someone gives you a gift, it becomes a “Potentially Exempt Transfer” – the liability to tax decreases over time, and disappears after seven years.

There are some exemptions regarding gifts. These are quite
complicated, involving annual allowances and special provisions for giving gifts to married couples.

Life cover

Life cover will form part of your estate, and therefore be taxable, unless it is written under trust. This is a relatively simple procedure, and you should seek professional advice in making the necessary arrangements. The only real complexity relates to life assurance provided by your employer, or in connection with your pension. Once again, you should seek advice.

Legislation keeps changing and it is important to get the right advice.

Since 6th April 2005: Income Tax And Pre-owned Assets

You may think Inheritance Tax can be avoided by simply giving away your assets, thereby putting them outside your estate. Indeed, if you do this, and survive the gift by seven years, the assets do fall outside your estate, but when you give away assets but continue to enjoy a benefit from them, these normal rules no longer apply and the asset remains within your estate. For example, if you give away your house but continue to live in it, it will not fall outside your estate and you will not escape inheritance tax on the house.

For land the benefit is calculated by reference to the rental value of the land. This is the rent that would have been payable if it had been let to the taxpayer at an annual open market rent. That annual value is calculated assuming the tenant undertook to pay all taxes, rates and charges usually paid by a tenant and the landlord undertook to bear the cost of repairs and insurance and any other expenses necessary for maintain the property in a state to command that rent.
For chattels and intangible property the charge is a percentage of the open market value of the chattel. The percentage is the “official rate of interest” currently 5%.

The value from which the benefit is calculated may be affected by contributions and disposals that the taxpayer has made since 18th March 1986.

When you are dead, they cannot tax you so they tax your children instead.

You may feel that once you’re dead the payment of tax on the assets you wish to leave, more commonly known as your estate, is of no concern to you but have you considered who will pay the tax? Unfortunately, although it’s your estate that gets taxed, it is the people you want to benefit who will ultimately have to pay the tax bill.

Help is at hand

There are many aspects to this Taxation and it is important to get the correct advice as soon as you can. We have years of experience in dealing with these matters and can help youand more importantly your depandants.

‘We believe that to large degree Inheritance Tax is a voluntary tax which can be easily reduced or even eliminated with some careful planning.’

Tax treatment varies according to individual circumstances and is subject to change.