Is Inheritance Tax Planning Really Necessary?

Many people believe that Inheritance Tax (IHT) planning isn’t necessary as they don’t have sufficient assets to worry about it.

But how sure are you that it doesn’t apply to you?
Let’s take a married couple in their early fifties with a house worth £400,000 but with a mortgage of £250,000 as an example. They have savings of £75,000 and cars worth £20,000. Therefore, their net asset position is around £245,000, well below the individuals IHT free allowance of £325,000, let alone their combined allowance of £650,000.

So why do they need to plan for IHT?
Well, if the husband were to die, what is the real asset position then? The mortgage is covered by life insurance and the husband also has death in service benefit of 4 times his salary (£75,000) giving a lump sum payment of £300,000, nominated to his wife.

He also has a pension fund of £250,000 which will pay out as a lump sum again to his wife. In addition the wife, as her parents’ only child can expect to receive £300,000 at some point in the future.

Suddenly, the wife’s new net asset position is quite different with assets in the region of £1,345,000. She will have inherited her husbands nil rate band such that on her death the first £650,000 of assets will be tax free, but the remainder (£695,000) will be subject to IHT at 40% giving a tax bill of £278,000. Suddenly IHT is an issue!

So what can be done about it?
A full review of your situation by an experienced IHT specialist can often yield significant tax savings. It also offers the ideal opportunity to make a Will or if you already have one, to ensure that it is up-to-date.

If you would like a no-obligation chat with Inheritance Tax Solicitors or would like to discuss making a Will to safeguard your family’s futures then please contact Ellen Fay on 01772 722373 or you can contact the office via the website at Solicitors in Preston.