inheritance_tax

The future can't be predicted but it can be protected and planned for with our guide on Inheritance Tax Planning to make sure the people you leave behind are financially supported.
About Tudor Franklin IFA

Tudor Franklin was established by Richard Meats and Bharat Chudasama, with a vision for a professional financial planning and advice service that can provide clear value to our clients at any stage in their financial life. With over 25 years joint experience advising clients on such matters as investments, pensions, inheritance tax planning and protection, we pride ourselves on being professional and delivering advice in a clear and understandable way.
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The future can't be predicted but it can be protected and planned for with our guide on Inheritance Tax Planning to make sure the people you leave behind are financially supported.
About Tudor Franklin IFA

JULY 2021INHERITANCE 
TAX PLANNING
!e future can’t be predicted,  
but it can be protected
G U I D E  T O
02      |      GUIDE TO INHERITANCE TAX PLANNINGW E L C O M E
!e future can’t be predicted, but it can be protected
W elcome to this Guide to Inheritance Tax Planning. You no doubt 
want your loved ones to inherit as much of your wealth as possible 
when you die. Estate planning is about more than just tax. It is 
about making sure the people le! behind are "nancially supported, that your 
assets are protected and that the tax your estate pays is fair
#e coronavirus (COVID-19) pandemic has served as a reminder of the 
importance of planning for the future and having our a$airs in order.  When 
you’ve worked hard and invested carefully to build your wealth, you want to look 
a!er it. #at’s why it’s important to plan for your wealth preservation and the 
eventual transfer of that wealth.
Have you considered this question: ‘What will happen to my estate once I’ve 
gone?’ Wealth preservation and wealth transfer are becoming an increasingly 
important issue for many families today. Individuals with assets of any size should 
seek professional "nancial advice to consider what action may need to be taken 
before it’s too late. 
#e reality is, most of us should prepare for the eventual transfer of our assets, 
regardless of any tax or legal consequences. It is natural that many of us want to 
leave our wealth to those who matter the most. Having a well-managed estate can 
save time and legal costs in the long term, help avoid a large Inheritance Tax bill, 
and cushion the blow for those you leave behind.
It’s important to start with a clear picture of your goals. You may want your estate 
to provide ongoing income and security for dependents, to make bequests or to set 
up Trusts. Everyone’s circumstances are di$erent – planning can look at tax-e%ciency 
and maintaining access to income and capital. 
It can also include protection from irresponsible bene"ciaries, or to provide for 
vulnerable or minor bene"ciaries. We can also help you assess and minimise any 
risk to your inherited assets, for example, from divorce or bankruptcy.
Wealth preservation and the transfer of your wealth is not just for the super 
rich. It is essential for anyone who wants to ensure that their loved ones bene"t 
from their inheritance and are not burdened by it. 
Time to preserve your wealth 
and transfer it e!ectively?
#e accumulation of your assets 
and wealth will have come from 
hard work and determination. So 
protecting this is essential. Preserving 
your wealth and transferring it 
e$ectively is an important part of 
wealth management, no matter 
how much wealth you have built 
up. To "nd out more or arrange an 
appointment, please contact us – we 
look forward to hearing from you.
G U I D E  T O 
I N H E R I T A N C E  
T A X  P L A N N I N G
TRUSTS ARE A HIGHLY COMPLEX AREA 
OF FINANCIAL PLANNING. 
INFORMATION PROVIDED AND 
ANY OPINIONS EXPRESSED ARE FOR 
GENERAL GUIDANCE ONLY AND NOT 
PERSONAL TO YOUR CIRCUMSTANCES, 
NOR ARE INTENDED TO PROVIDE 
SPECIFIC ADVICE. 
PROFESSIONAL FINANCIAL ADVICE 
SHOULD BE OBTAINED BEFORE TAKING 
ANY ACTION. 
03      |      GUIDE TO INHERITANCE TAX PLANNING02 WELCOME 
The future can’t be predicted, but it 
can be protected
04 KEEPING WEALTH  
IN THE FAMILY
Inheritance Tax receipts reach 
£5.32 billion in 2020/21
06 MAKING SUITABLE PLANS
Organise how much you could 
leave for the people you care about
08 INCREASED NET  
WORTH AND RISING 
MORTALITY RATES
The earlier you put plans in place, 
the more options you may have
10 MORE FAMILIES SUBJECT  
TO INHERITANCE TAX
Balancing your plan with other 
financial priorities is key
11 MAKING A WILL
Three in five UK adults have not 
made provision
12 INHERITANCE TAX 
RESIDENCE NIL-RATE BAND
Relieving the burden by making it 
easier for individuals to pass on the 
family home
14 LIFETIME TRANSFERS
Giving away money from your 
estate to reduce your Inheritance 
Tax bill
16 LEAVING YOUR  
LEGACY BEHIND
Considerations when making a Will
18 TRUSTS
‘Ring-fencing’ assets to protect 
family wealth for future 
generations
19 BARE TRUSTS
Held for the benefit of a  
specified beneficiary
20 DISCRETIONARY TRUSTS
Wide class of potential 
beneficiaries
22 FLEXIBLE TRUSTS WITH 
DEFAULT BENEFICIARIES
Discretion over which of the 
default and potential beneficiaries 
actually benefit
23 SPLIT TRUSTS
Family protection policies
24 LASTING POWER  
OF ATTORNEY
Taking control of decisions even 
in the event you can’t make them 
yourself 
26 PRESERVING WEALTH  
FOR FUTURE GENERATIONS
Factors likely to have a lasting 
and positive impact on wealth 
preservation
27 IN CONCLUSION
Estate planning possibilities
CONTENTS
Inheritance Tax is a tax on an estate (the property, 
money and possessions) of someone who's died. 
Inheritance Tax receipts in the United Kingdom 
amounted to approximately £5.32 billion in 2020/21, 
compared with £5.36 billion pounds in the previous 
"nancial year, which was a peak for this provided time 
period[1].
Raising the money to pay an Inheritance Tax bill may 
mean cashing in any savings accounts held by the deceased 
and potentially selling some of the assets in the estate.
There is no easy way to say it – anticipating one’s 
death is an uncomfortable topic. Yet it is often worth 
pushing past the initial discomfort to pursue the 
potential rewards of effective wealth transfer planning. 
There are three places your assets can go at your 
death: to your family and friends, to charity or to the 
government in the form of taxes. 
Almost half of all Baby Boomers say they have enough 
personal wealth that they can a$ord to gi! some of it away 
during their lifetime, new research shows[2]. #e "gures, 
collected by YouGov, show that 48% of Baby Boomers say 
they could a$ord to give money to family members before 
they die. Less than a third (29%) ruled it out, and 26% say 
they are unsure.
LARGER ONE-OFF WEALTH TRANSFERS
Of those who say they can a$ord to make lifetime gi!s, 
40% say they would favour multiple small gi!s and a third 
(33%) would prefer larger one-o$ wealth transfers. A 
further 30% are unsure which would better suit their needs.
Despite the large number of people who estimate they 
can a$ord to pass some of their savings and assets to family 
members, government statistics suggest only between 31% 
to 39% of people aged 50-69 have ever given a "nancial gi!. 
And just a small minority appear to have a plan for regular 
annual gi!ing, with just 15% of 50-59-year-olds having 
gi!ed in the last two years.
INTERGENERATIONAL FINANCIAL ADVICE
#e statistics reveal the importance of wealth transfer 
planning and lifetime gi!ing advice. It is estimated that 
around £5.5 trillion of intergenerational wealth transfers 
will occur over the next 30 years[3]. An e$ective plan can 
lessen the likelihood of family con&ict, reduce estate costs, 
reduce taxes and preserve wealth. 
Obtaining professional intergenerational "nancial advice 
will increasingly become a key part of "nancial planning 
for the Baby Boomer generation. #is generation has 
accrued signi"cant personal wealth, having bene"ted from 
K E E P I N G  W E A L T H  
I N  T H E  F A M I L Y
Inheritance Tax receipts reach £5.32 billion in 2020/21
04      |      GUIDE TO INHERITANCE TAX PLANNING
05      |      GUIDE TO INHERITANCE TAX PLANNINGrising house prices, stock market growth and the higher 
prevalence of generous pension schemes, and they want to 
give younger generations a "nancial boost.
LIFELINE FOR SOME YOUNGER PEOPLE
In contrast, younger generations o!en "nd themselves 
facing high house prices and the need to make signi"cant 
personal contributions to their De"ned Contribution 
pensions in order to secure a decent retirement fund.
Gi!ing between the generations will increasingly become 
a lifeline for some younger people as they struggle to get 
on the housing ladder, pay for school fees and deal with the 
ever-increasing expenses of living.
CAREFUL BALANCING ACT TO FIGURE OUT
Passing on wealth to the next generation is one of the most 
important yet challenging aspects of "nancial planning. It’s 
vital that helping the younger generations doesn’t come at 
the expense of your own retirement funds and so there is 
a careful balancing act to "gure out if you can a$ord it. If 
you can a$ord to gi!, it’s vitally important to consider the 
various Inheritance Tax and gi!ing rules. 
Despite this, there is still a clear ‘gi!ing gap’ between the 
number of people who can a$ord to gi! and those who actually 
have a lifetime gi!ing plan in place. Gi!ing is a great way to help 
you make the most of your "nancial assets and enjoy seeing your 
life savings helping your children and grandchildren.
WEALTH TRANSFER PLANNING PROCESS
Establishing who gets what, how they get it and when 
they get it, are, as a general rule, personal matters. But 
these decisions can have signi"cant "nancial implications. 
Life events, as well as market and regulatory factors, can 
impact the wealth transfer planning process. #erefore, it is 
important for your wealth transfer plan to remain &exible 
and be revisited and adjusted periodically.O
Source data:
[1] https://www.statista.com/statistics/284325/united-
kingdom-hmrc-tax-receipts-inheritance-tax/
[2] Research commissioned by Quilter and undertaken by 
YouGov Plc, an independent research agency. All "gures, 
unless otherwise stated, are from YouGov Plc. !e total 
sample size is 1,544 UK adults, comprised of 529 Baby 
Boomers, 501 Generation Xers and 514 Millennials. 
Fieldwork was undertaken between 07/07/2020 – 08/07/2020. 
!e survey was carried out online.
[3] ‘Passing on the pounds – !e rise of the UK’s inheritance 
economy'. Published May 2019. Author: Kings Court Trust
“
“
OF THOSE WHO SAY THEY CAN 
AFFORD TO MAKE LIFETIME GIFTS, 
40% SAY THEY WOULD FAVOUR 
MULTIPLE SMALL GIFTS AND A THIRD 
(33%) WOULD PREFER LARGER  
ONE-OFF WEALTH TRANSFERS.
Inheritance Tax can cost families thousands of pounds 
but there are various ways to legally avoid paying this 
tax. Without making suitable plans, your loved ones 
could face a tax bill of 40% on the value of everything you 
own above a certain threshold. 
Whether you have earned your wealth, inherited it or 
made shrewd investments, you will want to ensure that as 
little of it as possible ends up in the hands of the taxman 
and that it can be enjoyed by you, your family and your 
intended bene"ciaries.
If you pass away and don't have provision in place to 
preserve and protect your assets, then your family may 
end up spending a substantial amount of time and money 
battling over your wealth. 
#is process of dividing up your assets could become 
complicated. Estate planning gives you control over 
what happens to your assets when you pass away. It is a 
fundamental part of "nancial planning, no matter how much 
wealth you have accumulated. 
Not only does an estate plan help to ensure that those 
who are important to you will be taken care of when you’re 
no longer around, but it can also help ensure that assets are 
transferred in an orderly manner, and that Inheritance Tax 
liabilities are minimised.
#e process involves developing a clear plan that details 
how you would like all of your wealth and property 
to be distributed a!er your death. It involves putting 
documentation in place to ensure that your assets are 
transferred in line with your wishes. 
Your estate consists of everything you own. #is 
includes savings, investments, pensions, property, life 
insurance (not written in an appropriate trust) and 
personal possessions. Debts and liabilities are subtracted 
from the total value of all assets.
WHAT TO CONSIDER WHEN DEVELOPING AN 
EFFECTIVE PLAN FOR THE FUTURE
WRITE A WILL
One of the most important components of an estate plan is 
a Will. First and foremost, a Will puts you in control. You 
choose who will bene"t from your estate and what they are 
entitled to. You also decide who will administer your a$airs 
a!er your death.
If you don’t make a Will, the intestacy rules will decide 
who bene"ts from your estate – and that can produce 
undesirable results. #e law also sets a hierarchy of who is 
able to handle your "nancial a$airs a!er death, and that 
can lead to problems if the person is not suitable because of 
age, health, geographical location, or for any other reason.
MAKE A LASTING POWER OF ATTORNEY
A Lasting Power of Attorney (LPA) can be made for Property 
and Financial A$airs, as well as Health and Welfare. #ese 
documents can be put in place at any time, and it is important 
to consider setting them up, no matter what age you are.
An LPA sets out your wishes as to who should assist you 
in relation to your property and "nancial a$airs and your 
health and welfare. You can control who deals with these 
and set out any limitations and guidance.
PLAN FOR INHERITANCE TAX
Once the Will and the LPA are sorted, the next step is to think 
about Inheritance Tax planning. Whenever someone dies, the 
value of their estate may become liable for Inheritance Tax. If 
you are domiciled in the UK, your estate includes everything 
you own, including your home and certain trusts in which you 
may have an interest.
Inheritance Tax is potentially charged at a rate of 40% on 
the value of everything you own above the Nil-Rate Band 
(NRB) threshold. #e Nil-Rate Band is the value of your 
estate that is not chargeable to UK Inheritance Tax. 
GIFT ASSETS WHILE YOU’RE ALIVE
#e amount is set by the government and is currently 
£325,000, which is frozen until 2026. In addition, since 6 April 
2017, if you leave your home to direct lineal descendants, the 
value of your estate before tax is paid will increase with the 
addition of the Residence Nil-Rate Band (RNRB). For the 
2021/22 tax year, the Residence Nil-Rate Band is £175,000.  
One thing that’s important to remember when developing 
an estate plan is that the process isn’t just about passing 
on your assets when you die. It’s also about analysing your 
"nances now and potentially making the most of your 
assets while you are still alive. By gi!ing assets to younger 
generations while you’re still around, you could enjoy seeing 
the assets put to good use, while simultaneously reducing your 
Inheritance Tax bill.
06      |      GUIDE TO INHERITANCE TAX PLANNINGM A K I N G  
S U I T A B L E  P L A N S
Organise how much you could leave for the people you care about
07      |     GUIDE TO INHERITANCE TAX PLANNINGMAKE USE OF GIFT ALLOWANCES
A gi! from one individual to another constitutes a Potentially 
Exempt Transfer (PET) for Inheritance Tax. If you survive for seven 
years from the date of the gi!, no Inheritance Tax arises on the PET.
Each tax year, you can give away £3,000 worth of gi!s (your 
'annual exemption') tax-free. You can also give away wedding or 
registered civil partnership gi!s up to £1,000 per person (£2,500 for 
a grandchild and £5,000 for a child). In addition, you can give your 
children regular sums of money from your income.
You can also give as many gi!s of up to £250 to as many 
individuals as you want, although not to anyone who has already 
received a gi! of your whole £3,000 annual exemption. None of these 
gi!s are subject to Inheritance Tax.
INVEST INTO IHT-EXEMPT ASSETS
For experienced suitable investors, another way to potentially 
minimise Inheritance Tax liabilities is to invest in Inheritance Tax 
exempt assets. #ese schemes are higher risk and are therefore 
not suitable for all investors, and any investment decisions should 
always be made with the bene"t of professional "nancial advice.
One example of this is the Enterprise Investment Scheme (EIS). #e 
vast majority of EIS-qualifying investments attract 100% Inheritance 
Tax relief via Business Relief (BR) because the qualifying trades for EIS 
purposes are very similar to those which qualify for BR. Quali"cation 
for BR is subject to the minimum holding period of two years (from 
the later of the share issue date and trade commencement).
LIFE INSURANCE WITHIN A TRUST
Writing life insurance in an appropriate Trust is one of the best 
ways to protect your family’s future in the event of your death. 
Your life insurance policy is a signi"cant asset – and by putting 
life insurance in Trust, you can manage the way your bene"ciaries 
receive their inheritance.
The proceeds from the policy can be paid directly to your 
beneficiaries rather than to your legal estate and will therefore 
not be taken into account when Inheritance Tax is calculated.
KEEP WEALTH WITHIN A PENSION
A de"ned contribution pension is normally free of Inheritance 
Tax, unlike many other investments. It is not part of your taxable 
estate. Keeping your pension wealth within your pension fund 
and passing it down to future generations can be very tax-e%cient 
estate planning.
If you die before 75, your pension will be passed on tax-free. 
However, if you die a!er 75, your bene"ciaries will pay tax on the 
proceeds at their highest income tax rate. Your pension will not be 
covered by your Will, so you will need to ensure that your pension 
provider knows who your nominated bene"ciaries are.
PRESERVED WEALTH FOR FUTURE GENERATIONS
We all have one thing in common: we can’t take our assets with us when 
we die. If you want to ensure that your wealth is preserved for future 
generations and passed on e%ciently, an estate plan is crucial.O
With careful planning it may be possible 
to reduce signi"cantly the need for your 
estate to pay Inheritance Tax. We spend a 
lifetime generating wealth and assets but not many of us 
ensure that it will be passed to the next generation – our 
children, grandchildren, nieces, nephews, and so on. 
Intergenerational wealth transfer is the passage of wealth 
from one family generation to the next.  
It’s becoming increasingly important for more people 
to consider succession planning and intergenerational 
wealth transfer as part of their "nancial planning strategy. 
As the Baby Boomer generation reaches retirement age, 
we’re on the brink of a vast shi! in assets, unlike any that 
we have seen before. 
WEALTH TRANSFERS
By 2027, it is expected that wealth transfers will nearly 
double from the current level of £69 billion, to £115 billion[1], 
coined as ‘#e Great Wealth Transfer’ of the 21st century.
Intergenerational wealth transfer can be a huge issue for 
all family members concerned. If done well and executed 
properly, it can make a real di$erence to the "nancial 
position of the recipients. If misjudged or poorly handled, 
it can cause enormous issues, con&icts and resentments 
that are never forgotten nor forgiven.
FINANCIAL IMPLICATIONS
One aspect that hasn’t been widely considered is the impact 
on other family members, and in particular children, as 
their parents think about selling their business or retiring 
from their career, perhaps selling their family home, and 
starting life in retirement.
It is important that children are prepared to deal with 
this process, not least so they are aware of the "nancial 
implications and how they may be a$ected. For instance, 
children may be expecting to receive a certain amount of 
money from their parents – particularly those who are 
selling a business – and end up disappointed. Conversely, 
they may not be expecting to receive anything, and are 
therefore not equipped to deal with a windfall.
CONTRIBUTORY FACTORS 
According to the King’s Court Trust, £5.5 trillion will move 
hands in the United Kingdom between now and 2055, 
with this move set to peak in 2035[2]. Why? Well, there 
are a number of contributory factors that account for this. 
#e two main reasons are increased net worth and rising 
mortality rates.
For those approaching, or in, retirement, it’s important 
to have frank and open conversations with children about 
expectations and also whether children have the knowledge 
and understanding to manage "nancial matters.
APPROACHING RETIREMENT
#is is not an easy exercise, as you may not want to discuss 
your "nancial a$airs with your children. You may "nd your 
children’s eyes are opened when they see what their parents 
have been able to achieve "nancially. #ey may even want 
to know how they can do that themselves and change their 
own habits.
Everyone works hard to provide for their family, and 
perhaps even leave them a legacy. However, parents 
approaching retirement shouldn’t feel that their family is 
solely reliant on them, or that they need to be responsible 
for their children’s "nancial situation.
EXPRESSING WISHES 
A good approach is to help your children establish 
their own strong "nancial footing and be ready for 
intergenerational wealth transfer. For instance, introducing 
them to your professional advisers can provide comfort 
that there is someone they can go to for advice.
Having open conversations with your children and 
expressing wishes and goals will also ensure that your family are 
all on the same page, which can help reduce potential con&ict 
later when managing intergenerational wealth transfer.
I N C R E A S E D  N E T 
W O R T H  A N D  R I S I N G 
M O R T A L I T Y  R A T E S
!e earlier you put plans in place, the more options you may have
08      |      GUIDE TO INHERITANCE TAX PLANNING
THESE ARE SOME QUESTIONS YOU SHOULD 
ANSWER AS PART OF YOUR INTERGENERATIONAL 
WEALTH TRANSFER PLANS:
   When did wealth enter my life and how do I think this timing 
in&uences my values and family relationships?
   What impact does a'uence have on my life and the lives of my 
next generation?
   What was the key to my success in creating wealth  
and how might telling this story to my future generation be 
helpful?
   What is my biggest concern in raising my children or 
grandchildren with a'uence?
   What conversations (if any) did I have with my parents about 
money and wealth growing up?
  How did my parents prepare me to receive wealth?
   What lessons did I learn from my parents about money and 
"nance that I would like to pass on to my heirs?
   What family values would I like to pass down to the next 
generation and how do I plan on communicating this 
family legacy?
   What concerns do I have about my adult children when it comes 
to inheriting and managing the family wealth?
   How can I help prepare my bene"ciaries to receive wealth and 
carry on our family legacy?
BETWEEN GENERATIONS
Despite the vast amount of wealth likely to be passed down between 
generations, those in line for inheritance could end up being over-
reliant on their expected windfall. #e key will be to ensure younger 
generations are able to get involved and understand how to handle 
the wealth they will be inheriting, as well as being able to make good 
decisions about the wealth that they generate themselves.
You need to consider who will receive what and whether you 
want to pass your wealth during your lifetime or on death. #ese 
decisions then need to be balanced by the tax implications of any 
proposed planning. #is is especially important at what can be a 
highly stressful time. By making advanced preparations, the burden 
of "ling complicated Inheritance Tax returns can be reduced. It’s 
worth noting that UK Inheritance Tax receipts exceed £3 billion 
from 17,900 estates in 2019[3].O
Source data:
[1] Kings Court Trust, ‘Passing on the Pounds – !e rise of the 
UK’s inheritance economy’.
[2] Resolution Foundation, Intergenerational Commission. ‘!e 
million dollar be-question’.
[3] Prudential 2019.
09      |      GUIDE TO INHERITANCE TAX PLANNING
Making provision for Inheritance Tax needs 
to be in balance with the plan for your other 
"nancial priorities. E$ective estate preservation 
planning could save a family a potential Inheritance Tax 
bill amounting to hundreds of thousands of pounds. 
Inheritance Tax was introduced in 1986. It replaced 
Capital Transfer Tax, which had been in force since 1975 as 
a successor to Estate Duty. 
Inheritance Tax planning has become more important 
than ever, following the government’s decision to freeze 
the £325,000 lifetime exemption, with in&ation eroding 
its value every year and subjecting more families to 
Inheritance Tax.
AUTOMATIC RIGHTS
Inheritance Tax is usually payable on death. When a person 
dies, their assets form their estate. Any part of an estate 
that is le! to a spouse or registered civil partner will be 
exempt from Inheritance Tax. #e exception is if a spouse 
or registered civil partner is domiciled outside the UK. 
Unmarried partners, no matter how long-standing, have no 
automatic rights under the Inheritance Tax rules. 
However, there are steps people can take to reduce 
the amount of money their bene"ciaries have to pay if 
Inheritance Tax a$ects them. Where a person’s estate is le! 
to someone other than a spouse or registered civil partner 
(i.e. to a non-exempt bene"ciary), Inheritance Tax will be 
payable on the amount that exceeds the £325,000 Nil-Rate 
Band (NRB) threshold. #e threshold is currently frozen at 
£325,000 until the tax year 2021/22.
DECEASED SPOUSE
Every individual is entitled to a NRB (that is, every 
individual is entitled to leave an amount of their estate 
up to the value of the NRB threshold to a non-exempt 
beneficiary without incurring Inheritance Tax). If a 
widow or widower of the deceased spouse has not used 
their entire NRB, the NRB applicable at the time of 
death can be increased by the percentage of the NRB 
unused on the death of the deceased spouse, provided 
the executors make the necessary elections within two 
years of your death.
To calculate the total amount of Inheritance Tax payable 
on a person’s death, gi!s made during their lifetime that 
are not exempt transfers must also be taken into account. 
Where the total amount of non-exempt gi!s made within 
seven years of death plus the value of the element of the 
estate le! to non-exempt bene"ciaries exceeds the nil-rate 
threshold, Inheritance Tax is payable at 40% on the amount 
exceeding the threshold.
TAPERED AWAY
#is percentage reduces to 36% if the estate quali"es for 
a reduced rate as a result of a charity bequest. In some 
circumstances, Inheritance Tax can also become payable on 
the lifetime gi!s themselves – although gi!s made between 
three and seven years before death could qualify for taper 
relief, which reduces the amount of Inheritance Tax payable.
From 6 April 2017, an Inheritance Tax Residence Nil-Rate 
Band (RNRB) was introduced in addition to the standard 
NRB. It’s worth currently up to £175,000 for the 2021/22 tax 
year. It starts to be tapered away if an Inheritance Tax estate 
is worth more than £2 million on death.
RESIDENTIAL PROPERTY 
Unlike the standard NRB, it’s only available for transfers on 
death. It’s normally available if a person leaves a residential 
property that they’ve occupied as their home outright to 
direct descendants. 
It might also apply if the person sold their home or 
downsized from 8 July 2015 onwards. If spouses or 
registered civil partners don’t use the RNRB on "rst 
death – even if this was before 6 April 2017 – there are 
transferability options on the second death. 
PERSONAL REPRESENTATIVES 
Executors or legal personal representatives typically 
have six months from the end of the month of death to 
pay any Inheritance Tax due. The estate can’t pay out 
to the beneficiaries until this is done. The exception 
is any property, land or certain types of shares where 
the Inheritance Tax can be paid in instalments. 
Beneficiaries then have up to ten years to pay the tax 
owing, plus interest.O
M O R E  F A M I L I E S  
S U B J E C T  T O  
I N H E R I T A N C E  T A X
Balancing your plan with other "nancial priorities is key
10      |      GUIDE TO INHERITANCE TAX PLANNING
11      |     GUIDE TO INHERITANCE TAX PLANNINGIt’s important to make sure that a!er you die, your assets and 
possessions go to the people and organisations you choose, 
such as family members and charities you want to support.
Wills and Inheritance Tax planning more broadly are sensitive 
subjects for households across the UK and are o!en thought of as 
slightly taboo topics. However, the global coronavirus (COVID-19) 
pandemic has focused minds and given us space to think. 
And it seems that it’s prompted more people to take action, from 
making changes to existing Wills to encouraging them to think 
about writing one for the "rst time. But worryingly, three in "ve 
(59%) UK adults have not written a Will, new research[1] reveals. 
#is equates to 31 million people, whose property, "nancial and 
other assets could be le! to someone they have not chosen when they 
die. Of those who have not written a Will yet, 22% are over the age of 
75 and 39% are aged 65-74. Worryingly, a third (32%) of those aged 
75+ haven’t even started thinking about writing a Will yet. 
 
STARTED THINKING ABOUT WRITING A WILL
Since the start of lockdown, those aged between 25-34 have, 
however, started the Will writing process or made changes to their 
existing one. During this period, a "!h (21%) of 25-34-year-olds 
started thinking about writing a Will for the "rst time and one in 
ten (12%) wrote one. A further 30% updated an existing Will.
Respondents were also asked if they had a Lasting Power of 
Attorney (LPA) in place yet, "nding that just 12% of UK adults had 
an LPA in place before the COVID-19 lockdown. However, 6% said 
they had engaged a legal professional or the O%ce of the Public 
Guardian during the pandemic to put an LPA in place.
TYPES OF LASTING POWER OF ATTORNEY
HEALTH AND WELFARE LPAS
A Health and Welfare LPA allows you to appoint an Attorney to 
make decisions about matters such as:
   Your medical care
   Where you live
   Your daily routine, such as what you eat and what you wear
   Whom you have contact with
   Whether you have life-sustaining treatment – although only if 
you have given express permission
PROPERTY AND FINANCIAL AFFAIRS LPAS
A Property and Financial A$airs LPA gives your Attorney the 
power to do things such as:
   Buy and sell your property
   Pay your bills
   Collect your pension or bene"ts
   Manage your bank accounts
 
EMOTIONAL AND FINANCIAL PRESSURE 
A Will can provide peace of mind that not only will the correct 
bene"ciaries bene"t from any estate distribution, but also that it 
is done as e%ciently as possible. But only 13% of UK adults have 
written a living Will, which is used to provide advanced decisions 
on refusing medical treatments if you become terminally ill or lose 
the ability to make decisions around medical treatment yourself. A 
further 6% said they had made a living Will, now more commonly 
called an ‘advance decision.’
While no one likes to think about their own mortality, getting 
your house in order by having the right legal instructions can 
take away much of the emotional and "nancial pressure at a very 
di%cult time. Taking the "rst step is always the most di%cult but 
puts you as the benefactor in the driving seat. 
 
ESPECIALLY IMPORTANT IF YOU HAVE CHILDREN
A Will can help reduce the amount of Inheritance Tax that might 
be payable on the value of the property and money you leave 
behind. Writing a Will is especially important if you have children 
or other family who depend on you "nancially, or if you want to 
leave something to people outside your immediate family.
If you die without a valid Will, you will be dying intestate and 
your estate will pass to those entitled under the intestacy rules. 
Under the intestacy rules, your estate could pass to unintended 
bene"ciaries and leave your loved ones in a very di%cult situation 
at an already emotionally challenging time.O
Source data: 
[1] Research from Canada Life 25/09/20
M A K I N G  A  W I L L
!ree in "ve UK adults have not made provision
The introduction of the 
Residence Nil-Rate Band 
(RNRB) has made it easier 
for some individuals to pass on the 
family home. #e rise in property 
prices throughout the UK means that 
even those with modest assets may 
exceed the £325,000 Nil-Rate Band 
(NRB) for Inheritance Tax. 
On 6 April 2017 the RNRB band 
came into e$ect. It provides an 
additional nil-rate band where an 
individual dies a!er 6 April 2017, 
owning a residence which they leave 
to direct descendants. 
During the 2021/22 tax year the 
maximum RNRB available is £175,000. 
Just like the standard NRB, any unused 
RNRB on the "rst death of a married 
couple or registered civil partners has 
the potential to be transferable even if 
the "rst death occurred before 6 April 
2017. However, the RNRB does come 
with conditions and so may not be 
available or available in full to everyone.
#e current legislation requires the 
NRB, RNRB and threshold for the 
RNRB taper to increase in line with 
the Consumer Prices Index (CPI) in 
each year from 2021/22.
TAXABLE ESTATE
#e RNRB is set against the taxable 
value of the deceased’s estate – not 
just the value of the property. Unlike 
the existing NRB, it doesn’t apply to 
transfers made during an individual’s 
lifetime. For married couples and 
registered civil partners, any unused 
RNRB can be claimed by the surviving 
spouse’s or registered civil partner’s 
personal representatives to provide a 
reduction against their taxable estate.
Where an estate is valued at more 
than £2 million, the RNRB will be 
progressively reduced by £1 for every 
£2 that the value of the estate exceeds 
the threshold. Special provisions apply 
where an individual has downsized to 
a lower value property or no longer 
owns a home when they die.
LIFETIME GIFTS 
In determining whether the £2 million 
threshold is breached, it is necessary 
to ignore reliefs and exemptions. 
#is means that business relief and 
agricultural relief are ignored when 
determining the value of the estate for 
the RNRB, even though they are taken 
into account to calculate the liability to 
Inheritance Tax.
As the £2 million is based on the 
value of the assets owned at the time 
of death, it does not include any 
lifetime gi!s made by the deceased, 
even if they were made within seven 
years of death and are included in the 
Inheritance Tax calculation.
DIRECT DESCENDANTS 
#e £2 million threshold is frozen 
until 5 April 2021, a!er which, like 
the standard NRB and Inheritance 
Tax RNRB, it will increase in line with 
CPI. In the 2021/22 tax year, estates 
of £2.35 million or greater will not 
bene"t from an RNRB.
#e amount of RNRB available to be 
set against an estate will be the lower of 
the value of the home, or share, that’s 
inherited by direct descendants and 
the maximum RNRB available when 
the individual died. 
DECEASED SPOUSE
Where the value of the property is 
lower than the maximum RNRB, 
the unused allowance can’t be o$set 
against other assets in the estate but 
can be transferred to a deceased 
spouse or registered civil partner’s 
estate when they die, having le! a 
residence to their direct descendants.
A surviving spouse or registered 
civil partner’s personal representatives 
may claim any unused RNRB available 
from the estate of the "rst spouse or 
registered civil partner to die. 
RESIDENTIAL INTEREST 
#is is subject to the second death 
occurring on or a!er 6 April 2017 
and the survivor passing a residence 
they own to their direct descendants. 
#is can be any home they’ve lived in 
– there’s no requirement for them to 
have owned or inherited it from their 
late spouse or registered civil partner. 
In order to pass on a qualifying 
residential interest and use the 
Inheritance Tax RNRB, the property 
needs to be ‘closely inherited’. #is 
means that the property must be 
passed to direct descendants.
SPECIAL GUARDIAN 
For these purposes, direct descendants 
are lineal descendants of the deceased 
– children, grandchildren and any 
remoter descendants together with 
their spouses or registered civil 
partners, including their widow, 
widower or surviving registered 
civil partner. Also included are a 
step, adopted or fostered child of 
the deceased, or a child to which the 
deceased was appointed as a guardian 
or a special guardian when the child 
was under 18.
Direct descendant doesn’t include 
nephews, nieces, siblings and other 
relatives. If an individual, a married 
couple or registered civil partners do not 
have any direct descendants that qualify, 
they will be unable to use the RNRB.
DEEMED RESIDENCE
#e facility to claim unused RNRB 
applies regardless of when the "rst 
death occurred – if this was before 
it was introduced, then 100% of a 
deemed RNRB of £175,000 can be 
claimed, unless the value of the "rst 
I N H E R I T A N C E  
T A X  R E S I D E N C E  
N I L - R A T E  B A N D
Passing on your wealth in the right way is key for its preservation
12      |      GUIDE TO INHERITANCE TAX PLANNING
spouse or registered civil partner’s estate 
exceeded £2 million, and tapering of the 
RNRB applies.
#e unused RNRB is represented as a 
percentage of the maximum RNRB that 
was available on "rst death – meaning the 
amount available against the survivor’s 
estate will bene"t from subsequent 
increases in the RNRB. 
DEED OF VARIATION
#e transferable amount is capped at 100% 
– claims for unused RNRB from more than 
one spouse or registered civil partner are 
possible but in total can’t be more than 
100% of the maximum available amount.
Under the RNRB provisions, direct 
descendants inherit a home that’s le! to 
them which becomes part of their estate. 
#is could be under the provisions of the 
deceased’s Will, under the rules of intestacy 
or by some other legal means as a result of 
the person’s death – for example, under a 
deed of variation.
MAIN RESIDENCE
#e RNRB applies to a property that’s 
included in the deceased’s estate and one 
in which they have lived. It needn’t be 
their main residence, and no minimum 
occupation period applies. If an individual 
has owned more than one home, their 
personal representatives can elect which 
one should qualify for RNRB. 
#e open market value of the property will 
be used less any liabilities secured against it, 
such as a mortgage. Where only a share of 
the home is le! to direct descendants, the 
value and RNRB is apportioned.
COMPLEX AREA
A home may already be held in Trust when 
an individual dies or it may be transferred 
into Trust upon their death. Whether 
the RNRB will be available in these 
circumstances will depend on the type of 
Trust, as this will determine whether the 
home is included in the deceased’s estate, 
and also whether direct descendants are 
treated as inheriting the property.
#is is a complex area, and HM Revenue 
& Customs provides only general guidance, 
with a recommendation that a solicitor 
or Trust specialist should be consulted to 
discuss whether the RNRB applies. 
DOWNSIZING ADDITION
Estates that don’t qualify for the full 
amount of RNRB may be entitled to 
an additional amount of RNRB – a 
downsizing addition if the following 
conditions apply: the deceased disposed 
of a former home and either downsized 
to a less valuable home or ceased to 
own a home on or after 8 July 2015; 
the former home would have qualified 
for the RNRB if it had been held until 
death; and at least some of the estate is 
inherited by direct descendants.
The downsizing addition will generally 
represent the amount of ‘lost’ RNRB that 
could have applied if the individual had 
died when they owned the more valuable 
property. However, it won’t apply where 
the value of the replacement home they 
own when they die is worth more than 
the maximum available RNRB. It’s also 
limited by the value of other assets left to 
direct descendants. 
PLANNING TECHNIQUES
#e downsizing addition can also apply 
where an individual hasn’t replaced a 
home they previously disposed of – 
provided they leave other assets to direct 
descendants on their death. #e deceased’s 
personal representatives must make a 
claim for the downsizing addition within 
two years of the end of the month in which 
the individual died.
Di$erent planning techniques are 
available to address a potential Inheritance 
Tax liability, and these can be incorporated 
into the "nancial arrangements of any 
individual whose estate is likely to exceed 
the threshold.O
13     |      GUIDE TO INHERITANCE TAX PLANNING
Inheritance Tax exemptions can be achieved by means 
of making certain exempt transfers, which apply in a 
number of cases including wedding gi!s, life assurance 
premiums, gi!s to your family and charitable giving.
If appropriate, you can transfer some of your assets 
while you’re alive – these are known as lifetime transfers. 
Whilst we are all free to do this whenever we want, it is 
important to be aware of the potential implications of 
such gi!s with regard to Inheritance Tax. #e two main 
types are ‘potentially exempt transfers’ and ‘chargeable 
lifetime transfers’.
EXEMPT TRANSFERS 
Potentially exempt transfers are lifetime gi!s made directly 
to other individuals, which includes gi!s to Bare Trusts. 
A similar lifetime gi! made to most other types of Trust 
is a chargeable lifetime transfer. #ese rules apply to non-
exempt transfers: gi!s to a spouse are exempt, so are not 
subject to Inheritance Tax.
Where a potentially exempt transfer fails to satisfy 
the conditions to remain exempt – because the person 
who made the gift died within seven years – its value 
will form part of their estate. Survival for at least 
seven years, on the other hand, ensures full exemption 
from Inheritance Tax. A chargeable lifetime transfer 
is not conditionally exempt from Inheritance Tax. 
If it is covered by the Nil-Rate Band (NRB) and the 
transferor survives at least seven years, it will not 
attract a tax liability, but it could still impact on other 
chargeable transfers.
SEVEN YEARS
Chargeable lifetime transfers that exceed the available 
NRB when they are made result in a lifetime Inheritance 
Tax liability. Failure to survive for seven years results 
in the value of the chargeable lifetime transfers being 
included in the estate. If the chargeable lifetime transfers 
are subject to further Inheritance Tax on death, a credit 
is given for any lifetime Inheritance Tax paid.
Following a gi! to an individual or a Bare Trust (a 
basic Trust in which the bene"ciary has the absolute 
right to the capital and assets within the Trust, as well as 
the income generated from these assets), there are two 
potential outcomes: survival for seven years or more, and 
death before then. #e former results in the potentially 
exempt transfer becoming fully exempt and no longer 
"guring in the Inheritance Tax assessment. In other 
case, the amount transferred less any Inheritance Tax 
exemptions is ‘notionally’ returned to the estate.
TAX CONSEQUENCES 
Anyone utilising potentially exempt transfers for tax 
migration purposes, therefore, should consider the 
consequences of failing to survive for seven years. Such 
an assessment will involve balancing the likelihood of 
surviving for seven years against the tax consequences of 
death within that period.
Failure to survive for the required seven-year period 
results in the full value of the potentially exempt transfers 
being notionally included within the estate; survival 
beyond then means nothing is included. It is taper relief 
L I F E T I M E  T R A N S F E R S
Giving away money from your estate to reduce your Inheritance Tax bill
14      |      GUIDE TO INHERITANCE TAX PLANNING
which reduces the Inheritance Tax liability 
(not the value transferred) on the failed 
potentially exempt transfers a!er the full 
value has been returned to the estate. 
EARLIER TRANSFERS
#e value of the potentially exempt transfers 
is never tapered. #e recipient of the failed 
potentially exempt transfers is liable for the 
Inheritance Tax due on the gi! itself and 
bene"ts from any taper relief. #e Inheritance 
Tax due on the potentially exempt transfers is 
deducted from the total Inheritance Tax bill, 
and the estate is liable for the balance.
Lifetime transfers are dealt with in 
chronological order upon death; earlier 
transfers are dealt with in priority to later 
ones, all of which are considered before the 
death estate. If a lifetime transfer is subject 
to Inheritance Tax because the NRB is not 
su%cient to cover it, the next step is to 
determine whether taper relief can reduce 
the tax bill for the recipient of the potentially 
exempt transfers.
SLIDING SCALE
#e amount of Inheritance Tax payable is 
not static over the seven years prior to death. 
Rather, it is reduced according to a sliding 
scale dependant on the passage of time from 
the giving of the gi! to the individual’s death.
No relief is available if death is within three 
years of the lifetime transfer. For survival for 
between three and seven years, taper relief at 
the following rates is available.
TAPER RELIEF
#e rate of Inheritance Tax gradually reduces 
over the seven-year period – this is called 
taper relief. It works like this:
*How long ago was the gi# made?
**How much is the tax reduced?
*0-3 years 
**No reduction
3-4 years 
20%
4-5 years 
40%
5-6 years 
60%
6-7 years 
80%
MORE THAN 7 YEARS  
NO TAX TO PAY
It’s important to remember that taper 
relief only applies to the amount of tax the 
recipient pays on the value of the gi! above 
the NRB. #e rest of your estate will be 
charged with the full rate of Inheritance Tax 
– usually 40%.
DONOR PAYS
The tax treatment of chargeable lifetime 
transfers has some similarities to 
potentially exempt transfers but with a 
number of differences. When a chargeable 
lifetime transfer is made, it is assessed 
against the donor’s NRB. If there is an 
excess above the NRB, it is taxed at 20% 
if the recipient pays the tax or 25% if the 
donor pays the tax.
#e same seven-year rule that applies to 
potentially exempt transfers then applies. 
Failure to survive to the end of this period 
results in Inheritance Tax becoming due on 
the chargeable lifetime transfers, payable by 
the recipient. #e tax rate is the usual 40% 
on amounts in excess of the NRB, but taper 
relief can reduce the tax bill, and credit is 
given for any lifetime tax paid.
GIFT OF CAPITAL
#e seven-year rules that apply to potentially 
exempt transfers and chargeable lifetime 
transfers could increase the Inheritance Tax 
bill for those who fail to survive for long 
enough a!er making a gi! of capital. 
If Inheritance Tax is due in respect of a failed 
potentially exempt transfer, it is payable by the 
recipient. If Inheritance Tax is due in respect 
of a chargeable lifetime transfer on death, 
it is payable by the trustees. Any remaining 
Inheritance Tax is payable by the estate.
APPROPRIATE TRUST 
#e Inheritance Tax di$erence can be 
calculated and covered by a level or 
decreasing term assurance policy written 
in an appropriate Trust for the bene"t of 
whoever will be a$ected by the Inheritance 
Tax liability and in order to keep the proceeds 
out of the settlor’s Inheritance Tax estate. 
Which is more suitable and the level of cover 
required will depend on the circumstances. If 
the potentially exempt transfers or chargeable 
lifetime transfers are within the NRB, taper 
relief will not apply. 
However, this does not mean that no 
cover is required. Death within seven 
years will result in the full value of the 
transfer being included in the estate,  
with the knock-on effect that other estate 
assets up to the value of the potentially 
exempt transfers or chargeable lifetime 
transfers could suffer tax that they would 
have avoided had the donor survived for 
seven years. 
ESTATE LEGATEES 
A seven-year level term policy could be 
the most appropriate type of policy in this 
situation. Any additional Inheritance Tax 
is payable by the estate, so a Trust for the 
benefit of the estate legatees will normally 
be required.
Where the potentially exempt transfers or 
chargeable lifetime transfers exceed the NRB, 
the tapered Inheritance Tax liability that will 
result from death a!er the potentially exempt 
transfers or chargeable lifetime transfers are 
made can be estimated.
‘GIFT INTER VIVOS’
A special form of ‘gift inter vivos’ (a life 
assurance policy that provides a lump 
sum to cover the potential Inheritance 
Tax liability that could arise if the donor 
of a gift dies within seven years of making 
the gift) is put in place (written in an 
appropriate Trust) to cover the gradually 
declining tax liability that may fall on the 
recipient of the gift.
Trustees might want to use a life of another 
policy to cover a potential liability. Taper 
relief only applies to the tax: the full value of 
the gi! is included within the estate, which 
in this situation will use up the NRB that 
becomes available to the rest of the estate 
a!er seven years.
WHOLE OF LIFE COVER 
#erefore, the estate itself will also be liable 
to additional Inheritance Tax on death 
within seven years, and depending on the 
circumstances, a separate level term policy 
written in an appropriate trust for the estate 
legatees might also be required. 
Where an Inheritance Tax liability 
continues after any potentially exempt 
transfers or chargeable lifetime transfers 
have dropped out of account, whole of 
life cover written in an appropriate Trust 
should also be considered. O
15      |      GUIDE TO THE FUTURE OF RETIREMENT
16      |      GUIDE TO INHERITANCE TAX PLANNINGThinking about death isn't easy. Talking about it is 
even harder. #e reality of our own mortality is a 
tough subject, but a discussion will ensure your 
assets are le! to the right people.
If you want to be sure your wishes are met a!er you die, 
then it’s important to have a Will. A Will is the only way 
to make sure your money and possessions that form your 
estate go to the people and causes you care about. 
Unmarried partners, including same-sex couples who 
don’t have a registered civil partnership, have no right to 
inherit if there is no Will. One of the main reasons also for 
drawing up a Will is to mitigate a potential Inheritance Tax 
liability.
STATUTORY RULES 
Where a person dies without making a Will, the 
distribution of their estate becomes subject to the statutory 
rules of intestacy (where the person resides also determines 
how their property is distributed upon their death, which 
includes any bank accounts, securities, property and other 
assets they own at the time of death), which can lead to 
some unexpected and unfortunate consequences.
#e bene"ciaries of the deceased person that they want 
to bene"t from their estate may be disinherited or le! 
with a substantially smaller proportion of the estate than 
intended. Making a Will is the only way for an individual 
to indicate whom they want to bene"t from their estate. 
Failure to take action could compromise the long-term 
"nancial security of the family.
IMPLICATIONS OF DYING  
WITHOUT MAKING A WILL
   Assets people expected to pass entirely to their spouse 
or registered civil partner may have to be shared with 
children
   An unmarried partner doesn’t automatically inherit 
anything and may need to go to court to claim for a 
share of the deceased’s assets
   A spouse or registered civil partner from whom a 
person is separated, but not divorced, still has rights to 
inherit from them
   Friends, charities and other organisations the person 
may have wanted to support will not receive anything
   If the deceased person has no close family, more distant 
relatives may inherit
   If the deceased person has no surviving relatives at all, 
their property and possessions may go to the Crown
LEGAL RESPONSIBILITY
Without a Will, relatives who inherit under the law will 
usually be expected to be the executors (someone named 
in a Will, or appointed by the court, who is given the 
legal responsibility to take care of a deceased person’s 
remaining "nancial obligations) of your estate. #ey 
might not be the best people to perform this role. Making 
a Will lets the person decide the people who should take 
on this task.
Where a Will has been made, it’s important to review 
it regularly to take account of changing circumstances. 
Unmarried partners have no right to inherit under 
the intestacy rules, nor do step-children who haven’t 
been legally adopted by their step-parent. Given today’s 
complicated and changing family arrangements, Wills are 
o!en the only means of ensuring legacies for children of 
earlier relationships.
SIMPLIFYING THE DISTRIBUTION OF ESTATES 
FOR A SURVIVING SPOUSE OR REGISTERED 
CIVIL PARTNER
Changes to the intestacy rules covering England and Wales, 
which became e$ective on 1 October 2014, were aimed at 
simplifying the distribution of an estate and could mean a 
surviving spouse or registered civil partner receives a larger 
inheritance than under the previous rules. 
Making a Will is also the cornerstone for Inheritance Tax 
and estate planning.
Before making a Will, a person needs to consider:
   Who will carry out the instructions in the Will (the 
executor/s)
   Nominating guardians to look a!er children if the 
person dies before they are aged 18
   Making sure people the person cares about  
are provided for
L E A V I N G  Y O U R  
L E G A C Y  B E H I N D
Considerations when making a Will
17      |     GUIDE TO INHERITANCE TAX PLANNING   What gi!s are to be le! for family and 
friends, and deciding how much they 
should receive
   What provision should be taken to 
minimise any Inheritance Tax that 
might be due on the person’s death
PREPARING A WILL 
Before preparing a Will, a person needs 
to think about what possessions they are 
likely to have when they die, including 
properties, money, investments and 
even animals. Prior to an estate being 
distributed among beneficiaries, all debts 
and the funeral expenses must be paid. 
When a person has a joint bank account, 
the money passes automatically to the 
other account holder, and they can’t leave 
it to someone else.
Estate assets may include:
   A home and any other properties owned
   Savings in bank and building society 
accounts
   Insurance, such as life assurance or an 
endowment policy
   Pension funds that include a lump sum 
payment on death
   National Savings, such as Premium Bonds
   Investments such as stocks and shares, 
investment trusts, Individual  
Savings Accounts
   Motor vehicles
   Jewellery, antiques and other  
personal belongings
   Furniture and household contents
Liabilities may include:
   Mortgage(s)
   Credit card balance(s)
   Bank overdra!(s)
   Loan(s)
   Equity release
JOINTLY OWNED  
PROPERTY AND POSSESSIONS
Arranging to own property and other 
assets jointly can be a way of protecting 
a person’s spouse or registered civil 
partner. For example, if someone has a 
joint bank account, their partner will 
continue to have access to the money 
they need for day-to-day living without 
having to wait for their affairs to be 
sorted out.
There are two ways that a person  
can own something jointly with 
someone else:
AS TENANTS IN COMMON 
(CALLED ‘COMMON OWNERS’  
IN SCOTLAND)
Each person has their own distinct shares 
of the asset, which do not have to be equal. 
#ey can say in their Will who will inherit 
their share.
AS JOINT TENANTS (CALLED 
‘JOINT OWNERS’ IN SCOTLAND)
Individuals jointly own the asset so, if they die, 
the remaining owner(s) automatically inherits 
their share. A person cannot use their Will to 
leave their share to someone else.
PARTIAL INTESTACY
#is can sometimes happen even when there 
is a Will, for example, when the Will is not 
valid, or when it is valid but the bene"ciaries 
die before the testator (the person making the 
Will). Intestacy can also arise when there is a 
valid Will but some of the testator’s (person 
who has made a Will or given a legacy) assets 
were not disposed of by the Will. #is is 
called a ‘partial intestacy’. 
Intestacy therefore arises in all cases 
where a deceased person has failed to 
dispose of some or all of his or her assets 
by Will, hence the need to review a Will 
when events change. O
18      |      GUIDE TO INHERITANCE TAX PLANNINGT R U S T S
‘Ring-fencing’ assets to protect family wealth for future generations
Trusts are used to protect family wealth for future generations, reducing the inter-generational 
&ow of Inheritance Tax and ensuring bloodline protection for your estate from outside claims. 
#e way in which assets held within Trusts are treated for Inheritance Tax purposes depends 
on whether the choice of bene"ciaries is "xed or discretionary. 
#e most popular types of Trust commonly used for Inheritance Tax planning can usually be written 
on either an ‘absolute’ or a ‘discretionary’ basis and the taxation treatment is very di$erent for each.
A Trust is a "duciary arrangement that allows a third-party, or trustee, to hold assets on behalf of a 
bene"ciary or bene"ciaries. Once the Trust has been created, a person can use it to ‘ring-fence’ assets.
Trusts terms:
   Settlor – the person setting up the Trust.
   Trustees – the people tasked with looking a!er the Trust and paying out its assets.
   Bene"ciaries – the people who bene"t from the assets held in Trust.
19      |      GUIDE TO INHERITANCE TAX PLANNINGBare Trusts are also known as ‘Absolute’ or ‘Fixed 
Interest Trusts’, and there can be subtle di$erences. 
#e settlor – the person creating the Trust – makes a 
gi! into the Trust which is held for the bene"t of a speci"ed 
bene"ciary. If the Trust is for more than one bene"ciary, 
each person’s share of the Trust fund must be speci"ed. 
For lump sum investments, a!er allowing for any 
available annual exemptions, the balance of the gi! is a 
potentially exempt transfer for Inheritance Tax purposes. 
As long as the settlor survives for seven years from the date 
of the gi!, it falls outside their estate. 
#e Trust fund falls into the bene"ciary’s Inheritance Tax 
estate from the date of the initial gi!. With Loan Trusts, there 
isn’t any initial gi! – the Trust is created with a loan instead. 
And with Discounted Gi! plans, as long as the settlor is 
fully underwritten at the outset, the value of the initial gi! is 
reduced by the value of the settlor’s retained rights.
INCOME EXEMPTION
When family protection policies are set up in Bare Trusts, 
regular premiums are usually exempt transfers for Inheritance 
Tax purposes. #e normal expenditure out of income 
exemption o!en applies, as long as the cost of the premiums 
can be covered out of the settlor’s excess income in the same 
tax year, without a$ecting their normal standard of living.
Where this isn’t possible, the annual exemption o!en 
covers some or all of the premiums. Any premiums that are 
non-exempt transfers into the Trust are potentially exempt 
transfers. Special valuation rules apply when existing life 
policies are assigned into family Trusts. #e transfer of 
value for Inheritance Tax purposes is treated as the greater 
of the open market value and the value of the premiums 
paid up to the date the policy is transferred into Trust.
PARENTAL SETTLEMENT
#ere’s an adjustment to the premiums paid calculation 
for unit-linked policies if the unit value has fallen since the 
premium was paid. #e open market value is always used 
for term assurance policies that pay out only on death, even 
if the value of the premiums paid is greater.
With a Bare Trust, there are no ongoing Inheritance Tax 
reporting requirements and no further Inheritance Tax 
implications. With protection policies, this applies whether 
or not the policy can acquire a surrender value. 
Where the Trust holds a lump sum investment, the tax on 
any income and gains usually falls on the bene"ciaries. #e 
most common exception is where a parent has made a gi! 
into Trust for their minor child or stepchild, where parental 
settlement rules apply to the Income Tax treatment.
TRUST ADMINISTRATION
#erefore, the Trust administration is relatively 
straightforward, even for lump sum investments. Where 
relevant, the trustees simply need to choose appropriate 
investments and review these regularly.
With a Bare Trust, the trustees look a!er the Trust property 
for the known bene"ciaries, who become absolutely entitled 
to it at age 18 (age 16 in Scotland). Once a gi! is made or a 
Protection Trust set up, the bene"ciaries can’t be changed, 
and money can’t be withheld from them beyond the age of 
entitlement. #is aspect may make them inappropriate to 
many clients who’d prefer to retain a greater degree of control.
TRUST FUND
With a Loan Trust, this means repaying any outstanding 
loan. With a Discounted Gi! Trust, it means securing the 
settlor’s right to receive their "xed payments for the rest 
of their life. With protection policies in Bare Trusts, any 
policy proceeds that haven’t been carved out for the life 
assured’s bene"t under a Split Trust must be paid to the Trust 
bene"ciary if they’re an adult. Where the bene"ciary is a 
minor, the trustees must use the Trust fund for their bene"t.
Di%culties can arise if it’s discovered that a Trust 
bene"ciary has predeceased the life assured. In this 
case, the proceeds belong to the legatees of the deceased 
bene"ciary’s estate, which can leave the trustees with 
the task of tracing them. #e fact that bene"ciaries are 
absolutely entitled to the funds also means the Trust o$ers 
no protection of the funds from third-parties, for example, 
in the event of a bene"ciary’s divorce or bankruptcy. O
B A R E  T R U S T S
Held for the bene"t of a speci"ed bene"ciary
With a Discretionary Trust, the settlor makes a 
gi! into Trust, and the trustees hold the Trust 
fund for a wide class of potential bene"ciaries. 
#is is known as ‘settled’ or ‘relevant’ property. For lump 
sum investments, the initial gi! is a chargeable lifetime 
transfer for Inheritance Tax purposes. 
It’s possible to use any available annual exemptions. If the 
total non-exempt amount gi!ed is greater than the settlor’s 
available Nil-Rate Band (NRB), there’s an immediate 
Inheritance Tax charge at the 20% lifetime rate – or 
e$ectively 25% if the settlor pays the tax.
OTHER PLANNING 
#e settlor’s available NRB is essentially the current NRB 
less any chargeable lifetime transfers they’ve made in the 
previous seven years. So in many cases where no other 
planning is in place, this will simply be the current NRB, 
which is £325,000 up to 2021/22. #e Residence Nil-Rate 
Band (RNRB) isn’t available to Trusts or any lifetime gi!ing.
Again, there’s no initial gi! when setting up a Loan 
Trust, and the initial gi! is usually discounted when setting 
up a Discounted Gi! plan. Where a cash gi! exceeds the 
available NRB, or an asset is gi!ed which exceeds 80% 
of the NRB, the gi! must be reported to HM Revenue & 
Customs (HMRC) on an IHT 100. 
FAMILY PROTECTION 
When family protection policies are set up in Discretionary 
Trusts, regular premiums are usually exempt transfers for 
Inheritance Tax purposes. Any premiums that are non-
exempt transfers into the Trust will be chargeable lifetime 
transfers. Special valuation rules for existing policies 
assigned into Trust apply.
As well as the potential for an immediate Inheritance 
Tax charge on the creation of the Trust, there are two other 
points at which Inheritance Tax charges will apply. #ese 
are known as ‘periodic charges’ and ‘exit charges’. Periodic 
charges apply at every ten-yearly anniversary of the 
creation of the Trust. 
INVESTMENT BOND
Exit charges may apply when funds leave the Trust. #e 
calculations can be complex but are a maximum of 6% 
of the value of the Trust fund. In many cases, they’ll be 
considerably less than this – in simple terms, the 6% is 
applied on the value in excess of the Trust’s available NRB.
However, even where there is little or, in some 
circumstances, no tax to pay, the trustees still need to 
submit an IHT 100 to HMRC. Under current legislation, 
HMRC will do any calculations required on request. For 
a Gi! Trust holding an investment bond, the value of the 
Trust fund will be the open market value of the policy – 
normally its surrender value. 
RETAINED RIGHTS 
For a Loan Trust, the value of the trust fund is the bond 
value less the amount of any outstanding loan still 
repayable on demand to the settlor. Retained rights can be 
recalculated as if the settlor was ten years older
For Discounted Gi! schemes, the value of the Trust fund 
normally excludes the value of the settlor’s retained rights 
– and in most cases, HMRC are willing to accept pragmatic 
valuations. For example, where the settlor was fully 
underwritten at the outset, and is not terminally ill at a ten-
yearly anniversary, any initial discount taking account of 
the value of the settlor’s retained rights can be recalculated 
as if the settlor was ten years older than at the outset.
OPEN MARKET 
If a protection policy with no surrender value is held in 
a Discretionary Trust, there will usually be no periodic 
charges at each ten-yearly anniversary. However, a charge 
could apply if a claim has been paid out and the funds are 
still in the Trust. 
In addition, if a life assured is in severe ill health 
around a ten-yearly anniversary, the policy could have 
an open market value close to the claim value. If so, 
this has to be taken into account when calculating any 
periodic charge.
D I S C R E T I O N A R Y 
T R U S T S
Wide class of potential bene"ciaries
20      |      GUIDE TO INHERITANCE TAX PLANNING
CHARGEABLE EVENT 
Where Discretionary Trusts hold investments, 
the tax on income and gains can also be complex, 
particularly where income-producing assets 
are used. Where appropriate, some of these 
complications could be avoided by an individual 
investing in life assurance investment bonds, 
as these are non-income-producing assets and 
allow trustees to control the tax points on any 
chargeable event gains.
Bare Trusts give the trustees discretion over 
who bene"ts and when. #e Trust deed will set out 
all the potential bene"ciaries, and these usually 
include a wide range of family members, plus any 
other individuals the settlor has chosen. #is gives 
the trustees a high degree of control over the funds. 
#e settlor is o!en also a trustee to help ensure 
their wishes are considered during their lifetime.
TRUST PROVISIONS
In addition, the settlor can provide the trustees 
with a letter of wishes identifying whom they’d like 
to bene"t and when. #e letter isn’t legally binding 
but can give the trustees clear guidance, which can 
be amended if circumstances change. #e settlor 
might also be able to appoint a protector, whose 
powers depend on the Trust provisions, but usually 
include some degree of veto.
Family disputes are not uncommon, and 
many feel they’d prefer to pass funds down the 
generations when the bene"ciaries are slightly 
older than age 18. A Discretionary Trust also 
provides greater protection from third parties, for 
example, in the event of a potential bene"ciary’s 
divorce or bankruptcy, although in recent years 
this has come under greater challenge. O
21      |      GUIDE TO INHERITANCE TAX PLANNING
FlexibleTrusts are similar to a fully Discretionary 
Trust, except that alongside a wide class of 
potential bene"ciaries, there must be at least one 
named default bene"ciary. Flexible Trusts with default 
bene"ciaries set up in the settlor’s lifetime from 22 March 
2006 onwards are treated in exactly the same way as 
Discretionary Trusts for Inheritance Tax purposes. 
Di$erent Inheritance Tax rules apply to older Trusts set 
up by 21 March 2006 that meet speci"ed criteria and some 
Will Trusts. All post-21 March 2006 lifetime Trusts of this 
type are taxed in the same way as fully Discretionary Trusts 
for Inheritance Tax and Capital Gains Tax purposes. 
DEFAULT BENEFICIARY
For Income Tax purposes, any income is payable to and 
taxable on the default bene"ciary. However, this doesn’t 
apply to even regular withdrawals from investment 
bonds, which are non-income-producing assets. Bond 
withdrawals are capital payments, even though chargeable 
event gains are subject to Income Tax. As with Bare 
Trusts, the parental settlement rules apply if parents make 
gi!s into Trust for their minor children or stepchildren.
SIGNIFICANT DIFFERENCES 
When it comes to bene"ciaries and control, there are 
no signi"cant di$erences between fully Discretionary 
Trusts and this type of Trust. #ere will be a wide range 
of potential bene"ciaries. In addition, there will be one or 
more named default bene"ciaries. 
Naming a default bene"ciary is no more binding on 
the trustees than providing a letter of wishes setting out 
whom the settlor would like to bene"t from the Trust 
fund. #e trustees still have discretion over which of 
the default and potential bene"ciaries actually bene"ts 
and when. Some older Flexible Trusts limit the trustees’ 
discretionary powers to within two years of the settlor’s 
death, but this is no longer a common feature of this 
type of Trust. O
F L E X I B L E  T R U S T S 
W I T H  D E F A U L T  
B E N E F I C I A R I E S
Discretion over which of the default and potential bene"ciaries actually bene"t
22      |      GUIDE TO INHERITANCE TAX PLANNING
These Trusts are o!en used 
for family protection policies 
with critical illness or 
terminal illness bene"ts in addition 
to life cover. Split Trusts can be 
Bare Trusts, Discretionary Trusts 
or Flexible Trusts with default 
bene"ciaries. When using this type of 
Trust, the settlor/life assured carves 
out the right to receive any critical 
illness or terminal illness bene"t from 
the outset, so there aren’t any gi! with 
reservation issues.
In the event of a claim, the provider 
normally pays any policy bene"ts to 
the trustees, who must then pay any 
carved-out entitlements to the life 
assured and use any other proceeds to 
bene"t the Trust bene"ciaries. 
TRADE-OFF 
If terminal illness benefit is 
carved out, this could result in the 
payment ending up back in the life 
assured’s Inheritance Tax estate 
before their death. A carved-out 
terminal illness benefit is treated 
as falling into their Inheritance 
Tax estate once they meet the 
conditions for payment.
Essentially, these types of Trust o$er 
a trade-o$ between simplicity and 
the degree of control available to the 
settlor and their chosen trustees. For 
most, control is the more signi"cant 
aspect, especially where any lump sum 
gi!s can stay within a settlor’s available 
Inheritance Tax NRB. 
MAXIMUM CONTROL
Keeping gi!s within the NRB and 
using non-income-producing assets 
such as investment bonds can allow a 
settlor to create a Trust with maximum 
control, no initial Inheritance 
Tax charge and limited ongoing 
administrative or tax burdens.
In other cases, for example, 
grandparents funding for school fees, 
the Bare Trust may o$er advantages. 
#is is because tax will fall on the 
grandchildren, and most of the funds 
may be used up by the age of 18. #e 
considerations are slightly di$erent 
when considering family protection 
policies, where the settlor will o!en 
be dead when policy proceeds are 
paid out to bene"ciaries.
POLICY PROCEEDS
A Bare Trust ensures the policy 
proceeds will be payable to one 
or more individuals, with no 
uncertainty about whether the 
trustees will follow the deceased’s 
wishes. However, this can also mean 
that the only solution to a change in 
circumstances, such as divorce from 
the intended bene"ciary, is to start 
again with a new policy. 
Settlors are often excluded from 
benefiting under Discretionary and 
Flexible Trusts. Where this applies, 
this type of Trust isn’t suitable 
for use with joint life, first death 
protection policies if the primary 
purpose is for the proceeds to go to 
the survivor. O
S P L I T  T R U S T S
Family protection policies
23      |      GUIDE TO INHERITANCE TAX PLANNING
L A S T I N G  P O W E R  
O F  A T T O R N E Y
Taking control of decisions even in the event you can’t make them yourself
A Lasting Power of Attorney (LPA) enables individuals 
to take control of decisions that a$ect them, even 
in the event that they can’t make those decisions 
for themselves. Without them, loved ones could be forced to 
endure a costly and lengthy process to obtain authority to act 
for an individual who has lost mental capacity.
An individual can create a LPA covering their property and 
"nancial a$airs and/or a separate LPA for their health and 
welfare. It’s possible to appoint the same or di$erent attorneys 
in respect of each lasting power of attorney, and both versions 
contain safeguards against possible misuse.
OWN FINANCIAL AFFAIRS
It’s not hard to imagine the difficulties that could arise 
where an individual loses the capacity to manage their own 
financial affairs and, without access to their bank account, 
pension and investments, family and friends could face 
an additional burden at an already stressful time. LPA and 
their equivalents in Scotland and Northern Ireland should 
be a consideration in all financial planning discussions and 
should be a key part of any protection insurance planning 
exercise. Planning for mental or physical incapacity should 
sit alongside any planning for ill health or unexpected 
death.
LOSING MENTAL CAPACITY
Commencing from 1 October 2007, it is no longer possible 
to establish a new Enduring Power of Attorney (EPA) in 
England and Wales, but those already in existence remain 
valid. #e attorney would have been given authority to act in 
respect of the donor’s property and "nancial a$airs as soon as 
the EPA was created. 
At the point the attorney believes the donor is losing their 
mental capacity, they would apply to the O%ce of the Public 
Guardian (OPG) to register the EPA to obtain continuing 
authority to act.
SIMILAR PROVISIONS IN SCOTLAND 
Similar provisions to LPAs apply in Scotland. #e ‘granter’ 
(donor) gives authority to their chosen attorney in respect 
of their "nancial and property matters (‘continuing power of 
attorney’) and/or personal welfare (‘welfare power of attorney’). 
#e latter only takes e$ect upon the granter’s mental 
incapacity. Applications for powers of attorney must 
be accompanied by a certi"cate con"rming the granter 
understands what they are doing, completed by a solicitor or 
medical practitioner only.
LPAs don’t apply to Northern Ireland. Instead, those seeking 
to make a power of attorney appointment over their "nancial 
a$airs would complete an EPA. #is would be e$ective as soon 
as it was completed and would only need to be registered in 
the event of the donor’s loss of mental capacity with the High 
Court (O%ce of Care and Protection).
CONCERNING MEDICAL TREATMENT
It’s usual for the attorney to be able to make decisions about 
the donor’s "nancial a$airs as soon as the LPA is registered. 
Alternatively, the donor can state it will only apply where the donor 
has lost mental capacity in the opinion of a medical practitioner.
A LPA for health and welfare covers decisions relating 
to an individual’s day-to-day wellbeing. The attorney may 
only act once the donor lacks mental capacity to make the 
decision in question. The types of decisions covered might 
include where the donor lives and decisions concerning 
medical treatment.
LIFE-SUSTAINING TREATMENT 
#e donor also has the option to provide their attorney with 
the authority to give or refuse consent for life-sustaining 
treatment. Where no authority is given, treatment will be 
provided to the donor in their best interests. 
Unlike the registration process for an EPA, registration for 
both types of LPA takes place up front and is not dependent 
on the donor’s mental capacity. An attorney must act in the 
best interest of the donor, following any instructions and 
considering the donor’s preferences when making decisions.
!ey must follow the Mental Capacity Act Code of Practice 
which establishes "ve key principles:
1.  A person must be assumed to have capacity unless it’s 
established he or she lacks capacity.
2.  A person isn’t to be treated as unable to make a decision 
unless all practicable steps to help him or her do so have 
been taken without success.
3.  A person isn’t to be treated as unable to make a decision 
merely because he or she makes an unwise decision.
4.  An act done, or decision made, under the Act for or on 
behalf of a person who lacks capacity must be done, or 
made, in his or her best interests.
5.  Before the act is done, or the decision is made, regard must 
be had to whether the purpose for which it’s needed can be 
as e$ectively achieved in a way that is less restrictive of the 
person’s rights and freedom of action.
24      |      GUIDE TO INHERITANCE TAX PLANNING
25      |      GUIDE TO INHERITANCE TAX PLANNINGLEGALLY BINDING DUTIES 
A donor with mild dementia might be provided with the means to 
purchase items for daily living, but otherwise their "nancial matters 
are undertaken by their attorney. #e code of practice applies a 
number of legally binding duties upon attorneys, including the 
requirement to keep the donor’s money and property separate from 
their own or anyone else’s.
Anyone aged 18 or over who has mental capacity and isn’t an 
undischarged bankrupt may act as an attorney. A trust corporation 
can be an attorney for a property and "nancial a$airs LPA. In 
practice, attorneys will be spouses, family members or friends, or 
otherwise professional contacts such as solicitors.
REPLACEMENT ATTORNEY
Where joint attorneys are being appointed, the donor will 
state whether they act jointly (the attorneys must make all 
decisions together), or jointly and severally (the attorneys 
may make joint decisions or separately), or jointly for some 
decisions (for example, the sale of the donor’s property) and 
jointly and severally in respect of all other decisions. An 
optional but useful feature of the LPA is the ability to appoint 
a replacement attorney in the event the original attorney is 
no longer able to act. 
#e donor can leave instructions and preferences, but if they 
don’t their attorney will be free to make any decisions they feel 
are correct. Instructions relate to things the attorney should or 
shouldn’t do when making decisions – not selling the donor’s home 
unless a doctor states the donor can no longer live independently or 
a particular dietary requirement would be examples.
‘CERTIFICATE PROVIDER’
Preferences relate to the donor’s wishes, beliefs and values they 
would like their attorney to consider when acting on their 
behalf. Examples might be ethical investing or living within close 
proximity of a relative.
#e following apply to both forms of LPA. A ‘certi"cate provider’ 
must complete a section in the LPA form stating that as far as they 
are aware, the donor has understood the purpose and scope of the 
LPA. A certi"cate provider will be an individual aged 18 or over and 
either, someone who has known the donor personally well for at 
least two years; or someone chosen by the donor on account of their 
professional skills and expertise – for example, a GP or solicitor.
CONCERNS OR OBJECTIONS
#ere are restrictions on who may act as a certi"cate provider – 
these include attorneys, replacement attorneys, family members 
and business associates of the donor. A further safeguard is the 
option for the donor to choose up to "ve people to be noti"ed when 
an application for the LPA to be registered is being made.
#is allows any concerns or objections to be raised before the 
LPA is registered, which must be done within "ve weeks from the 
date on which notice is given. #e requirement to obtain a second 
certi"cate provider where the donor doesn’t include anyone to be 
noti"ed has now been removed as part of the O%ce of the Public 
Guardian (OPG) review of LPAs.
COURT OF PROTECTION
A person making a LPA can have help completing it, but they must 
have mental capacity when they "ll in the forms. Otherwise, those 
seeking to make decisions on their behalf will need to apply to the 
Court of Protection for a deputyship order. #is can be expensive 
and time-consuming and may require the deputy to submit annual 
reports detailing the decisions they have made.
#ere are strict limits on the type of gi!s attorneys can make on 
the donor’s behalf. Gi!s may be made on ‘customary occasions’, 
for example, birthdays, marriages and religious holidays, or to 
any charity to which the donor was accustomed to donating. Gi!s 
falling outside of these criteria  would need to be approved by the 
Court of Protection. An example would be a gi! intended to reduce 
the donor’s Inheritance Tax liability. O
26     |      GUIDE TO INHERITANCE TAX PLANNINGWhether you have earned your wealth, inherited it or 
made shrewd investments, you will want to ensure that 
as little of it as possible ends up in the hands of HM 
Revenue & Customs. 
With careful planning and professional "nancial advice, it is 
possible to take preventative action to either reduce or mitigate 
a person’s bene"ciaries’ Inheritance Tax bill – or mitigate it 
altogether. #ese are some of the main areas to consider.
1. MAKE A WILL
A vital element of e$ective estate preservation is to make a Will. 
Making a Will ensures an individual’s assets are distributed in 
accordance with their wishes. #is is particularly important if 
the person has a spouse or registered civil partner. 
Even though there is no Inheritance Tax payable between both 
parties, there could be tax payable if one person dies intestate 
without a Will. Without a Will in place, an estate falls under the 
laws of intestacy – and this means the estate may  not be divided up 
in the way the deceased person wanted it to be.
2. MAKE ALLOWABLE GIFTS
A person can give cash or gi!s worth up to £3,000 in total each tax 
year, and these will be exempt from Inheritance Tax when they die. 
#ey can carry forward any unused part of the £3,000 exemption to 
the following year, but they must use it or it will be lost.
Parents can give cash or gi!s worth up to £5,000 when a 
child gets married, grandparents up to £2,500, and anyone else 
up to £1,000. Small gi!s of up to £250 a year can also be made 
to as many people as an individual likes.
3. GIVE AWAY ASSETS
Parents are increasingly providing children with funds to help 
them buy their own home. #is can be done through a gi!, 
and provided the parents survive for seven years a!er making 
it, the money automatically moves outside of their estate for 
Inheritance Tax calculations, irrespective of size.
4. MAKE USE OF TRUSTS
Assets can be put in an appropriate Trust, thereby no 
longer forming part of the estate. There are many types of 
Trust available and they can be set up simply at little or no 
charge. They usually involve parents (settlors) investing a 
sum of money into a Trust. The Trust has to be set up with 
trustees – a suggested minimum of two – whose role is to 
ensure that on the death of the settlors, the investment is 
paid out according to the settlors’ wishes. In most cases, 
this will be to children or grandchildren.
#e most widely used Trust is a Discretionary Trust, which 
can be set up in a way that the settlors (parents) still have 
access to income or parts of the capital. It can seem daunting 
to put money away in a Trust, but they can be unwound 
in the event of a family crisis and monies returned to the 
settlors via the bene"ciaries.
5. NORMAL EXPENDITURE OUT OF INCOME RULE
As well as considering putting lump sums into an 
appropriate Trust, people can also make monthly 
contributions into certain savings or insurance policies 
and put them into an appropriate Trust. #e monthly 
contributions are potentially subject to Inheritance Tax, 
but if the person can prove that these payments are not 
compromising their standard of living, they are exempt.
6. PROVIDE FOR THE TAX
If a person is not in a position to take avoiding action, 
an alternative approach is to make provision for paying 
Inheritance Tax when it is due. #e tax has to be paid within 
six months of death (interest is added a!er this time). Because 
probate must be granted before any money can be released 
from an estate, the executor may have to borrow money or use 
their own funds to pay the Inheritance Tax bill.
#is is where life assurance policies written in an 
appropriate Trust come into their own. A life assurance 
policy is taken out on both a husband’s and wife’s life with the 
proceeds payable only on second death. #e amount of cover 
should be equal to the expected Inheritance Tax liability. By 
putting the policy in an appropriate Trust, it means it does not 
form part of the estate.
#e proceeds can then be used to pay any Inheritance Tax bill 
straight away without the need for the executors to borrow. O
P R E S E R V I N G  
W E A L T H  F O R  
F U T U R E  G E N E R A T I O N S
Factors likely to have a lasting and positive impact on wealth
27    |      GUIDE TO INHERITANCE TAX PLANNINGIf you do not plan for what happens to your assets when you die, more of your estate than necessary could be exposed 
to Inheritance Tax. You want to be sure that the right people will get the right amounts at the right time – and that 
they are ready to receive potentially large sums.
From essential estate planning, such as the establishment of Wills and Power of Attorney, to options such as making the 
most of exemptions, giving away excess income and creating Trusts, there are numerous estate planning possibilities.
Everyone has di$erent requirements and motivations – the right solutions for you are the ones that suit your personal 
circumstances. We can work with you to discover what these are. Our estate planning advice service is designed to help 
you maximise your wealth and minimise a potential Inheritance Tax bill.
Whether building a "nancial plan with you from the start or reviewing your existing arrangements, we can provide 
professional "nancial advice to help guide you through the process to de"ning your goals and recommend a tailored 
strategy to meet your individual needs that will be &exible enough to adapt as your life changes. To "nd out more, please 
contact us – we look forward to hearing from you.
I N  C O N C L U S I O N
Estate planning possibilities
This guide is for your general information and use only, and is not intended to address your particular requirements. The content 
should not be relied upon in its entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made 
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or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving 
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loss as a result of acts or omissions taken in respect of the content. Thresholds, percentage rates and tax legislation may change 
in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the 
individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than 
you invested. All figures relate to the 2021/22 tax year, unless otherwise stated.
NEED TO START PLANNING TO 
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THE NEXT GENERATION?
If you’ve not made the right arrangements, your family may be faced with an 
unexpected or large Inheritance Tax bill to pay in the event of your premature 
death. It’s a complex area of financial planning, but with the right professional 
advice it can reduce or mitigate  the amount of tax payable. 
To review your current situation or to discuss the options available, please 
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