There are only two certainties in life: death and taxes. But did you know a third one exists? It is called taxes upon death.

While the literal term may sound grim, the proper term is “inheritance tax”, where a certain amount (40 per cent in the UK) of a deceased’s estate is deducted and paid to the government. 

Despite estate planning, IHT affects inheritors due to the continued rise of property prices and investment values. As such, what they are left with is not enough to meet the inflation rates.

Even if the chancellor has frozen the IHT nil-rate band until 2026, it is possible to adjust for these setbacks as early as now in your estate planning. Below are five sensible tips for your estate to go the right people.

Understand How IHT Is Deducted

Knowing how IHT is computed makes tax reductions easier for your heirs. 

Upon death, Her Majesty’s Revenue and Customs (HMRC) accounts for your entire estate’s value. Your estate is inclusive of properties and savings minus outstanding debts. These do not include pension funds and certain exempt assets.

In addition, untouched allowances automatically revert to your spouse or civil partner. Up to £1 million can be passed on without any IHT deductions.

Always Have a Will

A will is a formal document that certifies the legal inheritors of the estate in question. Without one, your estate planning will have been for nought as they could be given to the wrong people or—in extreme cases—revert to the state.

If you already have a will, regularly review it to update or double-check your assets and wishes. The best times to review a will is during a birthday, marriage, or divorce, as those are significant life changes. You must also update your executors in each revision, who can act on your behalf when needed.

Secure the Power of Attorney (PoA)

In the event of old age or illness that hinders you from proper estate planning, you must also secure a PoA after revising or finalising your will. PoA is a legal right where you appoint someone or a group of people (relatives or friends) to handle your estate when you are physically or psychologically unable to do so.

As long as your wishes are documented in a will, you can rest assured that those with PoA will oversee your affairs to the letters.

Just like revising a will and updating your executors, you must also update your PoAs to ascertain that your chosen Attorney(s) can still carry out their duties.

Set up Trust Funds

Trust funds are not just financial implements for the extremely wealthy to avoid tax. They are also a means by which assets can be bequeathed to an inheritor but are received by them at a set time and set method.

This tip is particularly useful for inheritors such as children or grandchildren who are still too young to handle the assets passed on to them.

Utilise the Gifting Financial Implement

Aside from securing all legal documents for your inheritors, one of the most practical tips in estate planning is to give away assets—also known as “gifting”—to reduce your IHT percentage!

Gifting is one of the few tax exemptions the HRMC gives. The assets for gifting can be donated to charitable organisations and will not be considered payable on your estate. You can also set aside specific amounts from your current income for gifting, which falls outside the taxable estate amount.

As interesting as the last tip is, we cannot stress enough the importance of consulting with a financial advisor on this matter, considering there are strict criteria for gifting assets.

In Conclusion

These five sensible tips ensure the wealth you leave behind goes to your legal inheritors without them suffering heavy taxation from the government. Your final legacy of care and consideration is to entrust them with enough assets to survive rising inflation rates and increasing property values.

Get in touch with Wills and Probate to understand more about financial planning. We are an estate planning firm in the UK that specialises in wills, probate, and advice in inheritance to help you secure the best future.