Protecting your estate is ultimately about securing more of your wealth for your loved ones and planning for what will happen after your death to make the lives of your loved ones much easier.

You don’t have to be wealthy for your estate to be liable for IHT and it isn’t something that is paid only on death, it may also have to be paid on gifts made during someone’s lifetime. Your estate will be liable if it is valued over the current IHT threshold on your death. The IHT threshold, or Nil Rate Band (NRB), is fixed until 2020/21 at £325,000.

Your estate includes any gifts you may have made within seven years of your death. Anything under the IHT threshold is not taxed (the ‘Nil Rate Band’) and everything above it is taxed, currently at 40%. Where a person dies and leaves at least 10% of their net estate to a qualifying charity a reduced rate of 36% IHT can be payable.

Additional Nil Rate Band

From 6 April 2017 the Government will be introducing an Additional Nil Rate Band (ANRB). This will start at £100,000 and increase by £25,000 each tax year until it reaches £175,000 in 2020/21, when it will increase each tax year by the Consumer Price Index (CPI).

The ANRB will be available where you pass your house to your children, grandchildren or great grandchildren. It will also be available if you downsize or cease to own a home as long as the replacement is passed to your children, grandchildren or great grandchildren. It will start to reduce if your net estate is more than £2 million and will reduce by £1 forever £2 it is over.

Making gifts

If you can afford to make gifts during your lifetime this will also reduce the value of your estate, and so your ultimate IHT liability. You can make a gift of up to £3,000 a year without any IHT liability, and if you don’t use this whole allowance it can be carried forward to the next tax year.

Life insurance policy

Taking out a life insurance policy written under an appropriate trust could be used towards paying any IHT liability. Under normal circumstances, the payout from a life insurance policy will form part of your legal estate, and may therefore be subject to IHT. By writing a life-insurance policy in an appropriate trust, the proceeds from the policy can be paid directly to the beneficiaries rather than to your legal estate, and will therefore not be taken into account when IHT is calculated.

Setting up a trust

The structures into which you can transfer your assets can have lasting consequences for you and your family and it is crucial that you choose the right ones. The right structures can protect assets and give your family lasting benefits. A trust can be used to reduce how much IHT your estate will have to pay on your death. There are two types of trust to choose from, a Discretionary Trust and Bare Trust.

It is a legal arrangement where the ownership of someone’s assets (such as property, shares or cash) is transferred to someone else (usually a small group of people or a trust company) to manage and benefit a third person (or group of people). An appropriate trust can be used to reduce how much IHT your estate will have to pay on your death.

Make a Will

By making a Will you are detailing what you want to happen to your assets after you die. A Will also nominates someone to be in charge of carrying out your wishes. If you die without making a Will the government could keep everything if a suitable heir is not found. The rules of intestacy (dying without making a valid Will) can be very complicated and only your spouse or registered civil partner is assured of any inheritance.

The sooner you start planning, the more you can do

Whether you want to provide for the next generation or leave a charitable legacy when you die, or simply want to minimise an IHT bill, whatever your priorities are, the sooner you start thinking about this the more you can do.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE WILL WRITING, INHERITANCE TAX PLANNING OR TAXATION ADVICE.