Minimising Inheritance Tax

During the last few years, asset values, particularly house prices, have risen at a rate of approximately 60%, whereas the Inheritance Tax threshold has only increased by 16%. This means that the potential beneficiaries of 1.6 million UK homeowners could now be hit by Inheritance Tax. Anyone who has an estate worth over £312,000 is affected.

Your Own Estate

To help reduce the effect, ensure you have an up-to-date will, and try to use the nil-rate threshold as much as possible. For example, a married couple could both write wills leaving up to £312,000 to their children, and the remainder of their estate to each other. No Inheritance Tax would be payable, as the children are within the nil-rate band, and the surviving spouse does not have to pay inheritance tax (it is not charged on assets left to husbands or wives).

When leaving assets within the nil-rate allowance, you don't have to specify a sum in your Will - you can state that you want to leave an amount equivalent to the nil-rate allowance operating in the year of your death.

Other Inheritances

If you stand to inherit under a will, and you think you could face an inheritance tax bill, your options for avoiding the tax are limited to encouraging the person whose will it is to take steps to reduce the possible inheritance tax liability. But since most of the ways of reducing a potential tax bill involve either giving money and possessions away before death and/or paying for professional advice on inheritance tax planning, you may feel that, as a potential recipient, you could come across as a little grasping. Another barrier is that a lot of people don't like talking about money and death - even to their nearest and dearest.

Deed of Rearrangement

However, even if someone takes no steps to reduce a possible tax bill, it may not matter, because it is possible to alter someone's will after death by getting a solicitor to draw up a 'deed of rearrangement'. Provided you act within two years of a death and all the beneficiaries agree, rearranging a will - which can mean adding beneficiaries who weren't originally included - can reduce the tax bill. You can also use a deed of rearrangement to create a will for someone who died 'intestate' - without making a will.