Harnessing Your Financial Power – Protecting You Legacy

Lucy Young, Financial Planner at Independent Women

Inheritance Tax (IHT) is a tax on the estate of someone who has passed away. It can be a complex topic. However, with careful planning and strategic management, you can mitigate your potential IHT liability and ensure that your estate and legacy are protected from a large tax bill upon your death.

Changes from the Autumn Budget

The Autumn Budget of October 2024 brought significant announcements on Inheritance Tax, which will impact estate planning for many:

1. Threshold Freezes

The threshold for IHT has been frozen at £325,000 for a further two years (from 2028 to 2030), meaning that the amount you can inherit without paying tax remains the same. This means that as asset values increase with inflation, more estates will fall within the scope of IHT, a concept known as “fiscal drag”

2. Business Relief (BR) & Agricultural Property Relief

Business Relief allows certain business assets to be passed on free of IHT or at a reduced rate. This relief is crucial for family-owned businesses looking to minimize tax liabilities

Agricultural Property Relief provides relief on agricultural property, such as farms. This can significantly reduce the IHT owed on these types of properties

The Chancellor has announced reforms to these, including limiting 100% relief to the first £1 million of a person’s combined agricultural and business assets, with 50% relief applying to assets in excess of this. This change will significantly impact those with substantial agricultural and business holdings

3. Pensions

It was announced that an individual’s pensions will also fall within the scope of IHT from April 2027, until which point they will remain exempt 

Inheritance Tax Planning Considerations

To manage your IHT liability in light of these changes, it is essential to consider various strategies. It is important to note that each individual’s plan will be bespoke and it is important to be fully aware of all the relative advantages and disadvantages of each option before proceeding, as they have significant implications on access, control and sustainability of lifestyle

1. Gifting Directly

Gifting assets directly to family members can reduce the value of your estate and, consequently, the IHT owed. There are annual limits on how much you can gift tax-free

2. Trusts

Trusts can be used to manage and protect assets for future generations. They can offer flexibility and control over how assets are distributed whilst also potentially reducing IHT

3. Life Cover

Life cover can provide funds to pay IHT, ensuring that your executors don't have to sell assets to cover the tax bill. It's a practical way to manage the financial impact of IHT. It is important to write the policy into trust to avoid it being included in your estate for IHT purposes

4. Business Relief (BR)

As mentioned earlier, Business Relief can be a valuable tool for reducing IHT on business assets, as can investing in assets that qualify for BR

Conclusion

Inheritance Tax can be daunting, but understanding the changes from the Autumn Budget and considering various options can help you manage it effectively. In light of these changes, ensure you plan ahead and seek professional advice to protect your legacy.

Independent Women is a trading name of Forvis Mazars Financial Planning Ltd. The information contained in this article does not constitute individual advice. Forvis Mazars Financial Planning Ltd will not accept any responsibility for decisions taken or not taken on the basis of the information presented. Always obtain independent, professional advice relevant to your own circumstances.

Any reference to legislation and tax is based on Forvis Mazars Financial Planning Ltd’s understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.

Forvis Mazars Financial Planning Limited Forvis Mazars Financial Planning Ltd is registered in England and Wales No 3172233 with its registered office at 30 Old Bailey, London EC4M 7AU. Forvis Mazars Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. Forvis Mazars Financial Planning Ltd is a wholly owned subsidiary of Forvis Mazars LLP, the UK firm of Forvis Mazars Global, a leading global professional services network.