As Inheritance Tax is famously quoted as being ‘a voluntary tax payable by those, whose distrust of their heirs is slightly greater than their dislike of the Government’ there are many steps and actions which could reduce the value of an estate which is ultimately calculable for tax. The balance is to ensure the current generation (yourselves) have sufficient income, capital and financial security to make retirement both fulfilling and enjoyable, whilst also trying not to continue to accumulate wealth in excess of your needs and therefore enhance the tax take.
There are in principle three ways to approach to mitigate paying Inheritance Tax
- Do nothing – accept that tax will be payable and the net estate post tax will be sufficient legacy for your beneficiaries.
- Insure against it – this is similar to the first option in that it is accepting the tax is due. This may be because the assets are illiquid or so large there is limited action that can be taken, so life insurance is effected with the simple intention of paying the tax bill. Some people also view this as prepayment of the tax.
- Give it away – often misconstrued as simply making gifts, this is the development of a progressive plan of passing wealth both directly and indirectly to the next generation, but with the simple proviso that the wealth holders must come first!!
There are other strategies you can also consider, and it should be remembered that your business may fall outside your estate if you can claim on the various relief available.