Now you’re going to see how how you can reduce the value of your estate.
Some things will be much harder than others to deal with so let’s start with the easy stuff first.
Your life insurance is a good place to start.
There’s no need for your estate to pay inheritance tax on life insurance benefit payout!
Though you will if you own the policy and you’re the life assured.
We’re not going into enormous detail on this right now.
If you want to know more then our recent post will give you everything that you need.
So you make sure that any life insurance payment falls outside your estate, what’s next?
Have you set up any savings plans for your kids and if so are they in your name?
If they are then this means that the value of the asset will make up part of your estate.
Again this creates an issue not only from an IHT perspective but also in relation to succession.
Taking this out means that you’re reducing your estates value and any IHT liability along with it.
It also means that if anything happens to you the investment itself doesn’t have to be liquidated.
Which would be the case if you owned it. It may not be the best time to sell it.
One way of doing this is to put the kids investments into trust.
This allows the investment to remain intact and keeps the asset outside your estate.
If you’ve set up a savings plan with one of the offshore life companies then they have their own wrap around trusts.
They’ll do the job and they’re usually free.
Otherwise if you’ve got another type of investment then you may need to set up an offshore trust.
This will come at a cost as there’ll be set up fees and ongoing maintenance costs.
Some platform providers allow you to set up an account in your child’s name, whilst giving you control.
You can set it up to put both your partner and yourself in control.
This will also work and will mean that the asset falls outside both your estates.
Plus it will mean that there’s a better succession route for the asset.
Anything that you gift is also a potential IHT liability for 7 years after the gift’s given.
The liability reduces from the full rate after 3 years on a sliding scale.
Then after the seventh year it will fall outside your estate with no further liability.
There are some exceptions to this rule which help in relation to saving for your kids.
First of all both parents (not applicable to non-UK domicile partner) can gift £3,000 per annum. This will immediately fall outside the estate without any IHT liability.
The second exception relates to a parent ability to contribute to their kids savings.
They can add regularly from surplus income and it will immediately be outside the scope of IHT.
It is important that you can show the contributions have been made from income and not capital.
So maintaining records that support this is important!
Is there anything else that you can take out of your estate through gifting or through using a trust?
You should consider it though before you pass any other types of asset in this way it may be worth taking advice.
Once you’ve reduced the value of your estate as much as you can it’s time to look at the liability.
Again we take 40% of the estate value after deducting the allowances applicable to you.
This is what will need paying on your estate before it is able to clear probate.