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This image of three jars containing coins illustrates how an inheritance maty be divided between tax due to HMRC and family

How can you reduce inheritance tax on your estate?

Inheritance tax bills continue to soar, so what can you do to maximise what your beneficiaries receive?


In previous generations, very few people had to worry about inheritance tax. That’s all changed, thanks to a combination of soaring inflation, particularly property prices, and a freeze on the tax-free allowance. More estates are liable for tax, and bills have risen sharply.

In this article, AJB Wealth’s Managing Director, Paul Willans, explores how you can reduce your estate’s exposure.

According to the latest figures, HMRC collected £3.2 billion in inheritance tax in the five months from April to August 2023. This is an increase of £300 million on same period in the previous year, and continues an ongoing upward trend.

Meanwhile, the inheritance tax allowance has been frozen at £325,000 since 2009, and will remain frozen until at least 2027/28. If it had risen with CPI inflation, the first £558,000 of an estate would be tax-free.

‘The belief that IHT is strictly for the very rich, no longer applies,’ explains Chartered Wealth Manager Paul. ‘More and more families will face an unforeseen and unwelcome inheritance bill from the tax man.


Gifts and trusts

‘On a more positive note, careful planning can make all the difference to the family finances. There are a number of strategies for reducing IHT bills. These include setting up trusts, or simply making full use of tax-free gift allowances to pass on money to family.’

IHT does not generally apply to gifts to individuals–unless you die within seven years. There is also an annual gift allowance of up to £3,000 per tax year, not subject to IHT. This allowance applies even if you do die within seven years. If you didn’t use up last year’s allowance, you can still use it this year, until 5 April. In addition, subject to certain rules, gifts made from surplus income can be immediately exempt from tax.


Can you pass on your pension?

Pension pots are normally excluded from your estate for IHT purposes, so you can potentially pass on your pension in a tax-efficient way. You and your advisors should consider this when deciding which assets to use to provide for retirement.

Making a will is an essential step in effective inheritance tax planning, but not everyone has one, even though they know they should. Leaving a legacy to charity is something else to consider.


Tax-saving investments

In a recent post, we explored financial planning factors to consider, in the run up to the end of the financial year. IHT planning should be at the forefront.  Estate planning is another area to consider when reviewing your investments, as there are niche investments that can offer tax-saving incentives.

‘While not for everyone, they can be an effective means of shielding money from tax, which you do not wish to give away,’ says Paul.

‘The rise in tax receipts is good news for the Treasury, but an inheritance tax bill will be a nasty shock for many people,’ Paul concludes. ‘These figures are a reminder to people to assess the value of their estate regularly, taking into account property.

‘Professional advisers can help you work out your estate’s value, calculate likely inheritance tax, and understand the options for managing that tax bill.’


This article first appeared in February 2023 and was updated in September 2023.


At AJB Wealth, our experienced and highly-qualified team is well placed to work with you, and your other professional advisers, to help you achieve financial efficiency and security. To arrange an initial consultation, please book a meeting, or call us on 01483 774 070.


Important: The content of this bulletin is for general consideration only, and does not constitute advice. No action must be taken, or refrained from being taken, without advice and this company accepts no responsibility for any loss occasioned as a result of any such action, or inaction. You are also reminded that investments can fall, as well as rise, and, in the event of early encashment, you may receive less back than your original investment.

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