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Inheritance tax

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I’m pleased to announce that the blogger formerly known as Young FI Guy – or The Details Man as we shall now call him around here – has joined Team Monevator as a contributor! He’s a former accountant who was financially free by 30. We’re jealous, and so we asked him to write about taxes.

Few taxes engender controversy like inheritance tax (IHT). Despite it only being paid by around 4% of British estates, it’s subject to a great deal of debate.

But IHT is a tax that suffers from a lot of misconceptions – and it’s sometimes overlooked by those vulnerable to the taxman getting his hands on a hefty sum.

So what is IHT? Why should you care? And what can you do about it?

What is IHT?

IHT is not only a tax on death. IHT is a tax levied on what is given or transferred away.

Of course, the most common time this happens is when someone with a load of stuff passes away – because as far as I’m aware ghosts can’t own stuff.

But IHT can also kick in during a person’s lifetime, when assets are gifted or transferred.

In this sense IHT is the tax on the amount somebody is worse-off given a transfer of value.

What do we mean by transfer of value?

A transfer of value is a reduction in the value of somebody’s estate. There are typically two occasions when a transfer of value can occur:

  • On a gift or transfer during the person’s lifetime – a Lifetime Transfer
  • On the transfer of assets on death – the Death Estate

Push it to the limit

Each person has an effective limit on the amount of value they can transfer away without paying IHT.

  • This is called the Nil Rate Band (NRB). As of 2018/19, it is £325,000.

In addition, a person also has a Residential Nil Rate Band (RNRB), a wheeze brought in by former Chancellor George Osborne. Persons can use the RNRB to pass on their home (within certain conditions) to their descendants, without paying IHT.

  • The RNRB is £125,000 in 2018/19, rising to £175,000 in 2020/21.

So far so simple.

No PET–ing

The first wrinkle is that many transfers of value may not count towards the NRB.

Some transfers are Exempt – that is, they never count. For example, transfers of value between spouses are Exempt (more on that later).

Other transfers may not be immediately Exempt. Known as Potential Exempt Transfers (PETs), the most common of these is gifting assets to family members. If the giver survives seven years after the gift then it becomes Exempt.

Some lifetime transfers are not PETs. These are, shockingly, called Chargeable Lifetime Transfers (CLTs).

The most common CLTs are transfers to a Discretionary Trust above the NRB. The charge is calculated by looking back seven years from the CLT and adding up all the earlier CLTs. The sum above the NRB is charged at 20%, the amount below charged at 0%.

Death and taxes

On death, you look back seven years to find any lifetime transfers. (‘You’ being the survivor or their representatives. The deceased being engaged elsewhere…)

Any lifetime transfers made more than seven years ago become Exempt.

IHT is charged at 40% on the sum of the estate and lifetime transfers made in the last seven years, above the NRB

This charge is tapered for gifts older than three years but less than seven years.

Any IHT due on the estate is reduced by any IHT already paid on the lifetime gifts captured.

Why should you care about inheritance tax?

Three reasons:

  • IHT can be a very large amount of tax to pay.
  • The Government offers lots of ways to legally mitigate paying those large amounts.
  • With good planning, there may not be any IHT to pay at all.

As a born and bred East Ender – and a Chartered Accountant – I’m aware that for some, legally sidestepping paying tax is a popular pastime.

I’m not here to comment on whether that’s morally right or wrong. All I can do is offer some general thoughts as to what someone can do to legally reduce a potential IHT liability.

Let’s look at some – by no means all – of the things you can consider doing.

Ways to mitigate your IHT bill

#1 Make Exempt gifts

This method is very well-known, so I’ll be brief.

Exempt gifts don’t get taxed at all.

Each person can give away up to £3,000 each year. If you don’t use all your allowance in one year, you can use it in the following year. After that, you lose it.

You can give away £250 to as many people as you like. If you give more than £250 it becomes a PET.

A gift to a couple on their wedding is Exempt up to various limits.

As mentioned before, gifts between spouses are Exempt, too.

Finally, gifts out of normal expenditure’are also exempt if it’s a normal expenditure, made from income, and leaves the gifter with enough income to maintain a normal standard of living.

Pros: Easy to do, no tax to pay.

Cons: These are small beer amounts.

#2 Make PETs and survive seven years

Pros: Easy to do, can transfer large sums of money.

Cons: If you don’t survive seven years then there’ll be some tax to pay. Once you’ve given it away you’ve lost control of the money.

#3 Trusts

There are several types of trust you can gift assets to and potentially cut your IHT liability:

  • Discretionary Trusts – You transfer assets to some trustees to look after. They distribute it according to their discretion, but in accordance with your ‘wishes’. Discretionary trusts are quite flexible, but anything paid into them above the NRB counts as CLTs. These trusts also have extra anniversary IHT charges. One major benefit is that you can put money away in a trust without knowing who it may ultimately go to, or where it might be inappropriate to give Jr full control of the money (if, for example, they have a fondness for lots of expensive shiny things!)
  • Bare Trusts – You transfer assets to a trust set up with a specific beneficiary. These count as either exempt or PETs. Once the assets are in the trust you have effectively lost control of them – Jr can plunder the assets from age 18!
  • Loan Trusts – In effect you provide an interest-free loan to a trust. The trustees invest the money in a bond. The loan stays in the estate but the return on the bond sits outside the estate. Set up as either a Discretionary or Bare Trust.
  • Discounted Gift Trust – You gift capital to a trust in exchange for a regular withdrawal for life. Usually invested in a bond. At the outset, you agree the ‘discount’ with HMRC. This discount is the amount of the capital that becomes immediately Exempt. The rest counts as a CLT. Set up as either a Discretionary or Bare Trust.

Wealthy families use discretionary trusts for several reasons:

1. The money you put in below the NRB is IHT-free, once seven years are up. You can then put another lot up to the NRB in. So over time, you can potentially put huge sums away, with a low risk of a charge.

2. The gains on the assets will be IHT-free (as they are no longer yours). The trust does have to pay income and gains tax, but with some careful management you can also avoid paying lots of that, too.

3. Discretionary trusts are helpful where you don’t know who the money will go to (perhaps you haven’t had children yet) or you don’t want to risk giving the money away and seeing it all wasted. The trustees will act in the interests of the beneficiaries, but according to your wishes. So, for example, your 21-year-old black sheep of a son can’t go out and blow it all on illegal substances and strippers. (Or at least not all at once.)

4. For wealthy families, discretionary trusts typically don’t count as personal assets for things like divorce, bankruptcy, and so on – the idea is that anybody you don’t want getting their grubby mitts on what’s in it, can’t. But it may end up coming down to the decision of a court in any individual case. (This does not constitute legal advice, which of course you’ll want to pay for if going down this route.)

Pros: Can transfer large sums of money, assets in the trust can be paid out to beneficiaries far quicker than the estate, Discretionary Trusts keep some element of ‘control’ on the transfer.

Cons: Still likely to pay some tax, you still lose some control on transfer, somewhat costly and complex.

#4 Business Relief

You get a 100% reduction in IHT if you transfer a trading business or shares in an unlisted trading company that you’ve held for at least two years.

You get a 50% reduction on the transfer of business assets used in a trading company or business that you’ve held for two years.

AIM shares also count for business relief (if they are trading companies). Enterprise Investment Schemes do too, and they also have some income tax and capital gains tax benefits.

Pros: You get to keep some control of the investment (as, say, a company director). No need for trusts.

Cons: Risky assets, talk of legislative changes.

#5 Agricultural Property Relief (APR)

Like Business Relief, but for agricultural land and properties. Depending on the conditions you can get a 50% or 100% reduction.

Pros and cons: As for Business Relief, except the assets are perhaps even more esoteric.

#6 Life Policies

A whole-of-life insurance product written into trust. Two types: Unit-linked and Guaranteed.

[Update: Whole-of-life policies are apparently no longer being written, though many are still in force. Thanks to IFA Mark Meldon in a comment below for the heads-up on this.]

Unit-linked policies typically have a set premium for ten years, but the premium is reviewable afterwards and can jump significantly.

Guaranteed policies have fixed premiums and sum assured.

Pros: Unit-linked policies can give some ‘thinking time’. With a Guaranteed policy you can guarantee or ‘lock-in’ a relatively set IHT liability. Life policies can offer peace of mind. Written in trust means faster pay-out on death.

Cons: You only get the lump sum if you keep paying premiums, counter-party risk with the life office used, unit-linked policies can go up or down in value.

#7 Defined Contribution Pension Schemes

Recent pension changes mean Defined Contribution pension schemes are typically Exempt from IHT.

If you die before age 75, the pot is transferred to the beneficiary tax-free.

If you die after age 75, withdrawals from the pot are taxed at the beneficiary’s marginal rate.

Pros: You use an ‘Expression of Wishes’ to tell the pension scheme who you want money to go to. If you direct them (via a will for example) the pot is not exempt.

Cons: There may be Lifetime Allowance charges to pay, depending on the pot value.

Final words

I’ve tried to keep this post as light as possible – there are of course lots more rules behind everything I’ve written. If you’re considering your estate planning options, it’s important to get professional advice from an expert.

Finally, it’s cliché but don’t let the tax tail wag the investment dog! It’s a mistake to make planning decisions based purely on mitigating taxes, without considering the potential additional risks.

Always think carefully about whether an option is suitable for you in the bigger picture.

Further reading on IHT

Read all The Detail Man’s posts on Monevator.

{ 49 comments… add one }
  • 1 Matthew September 18, 2018, 10:43 pm

    If we get offered the care isa, that would be a good avoidance vehicle so long as we ‘re allowed to pay our actual care fees through iht exposed assets, and as long as that isn’t seen as deprivation

    I personally consider paying tax on a par with giving to charity, as the big does good service s, albeit maybe not as efficiently as the best charities, although some charities are effectively government funded arms of government anyway

  • 2 The Investor September 19, 2018, 10:02 am

    [Some posts deleted]

    @all — Can we stick to the subject of inheritance tax please? The link is there to Young FI Guy’s site if you’d like to discuss his own personal history there. Cheers.

  • 3 YoungFIGuy September 19, 2018, 10:53 am

    @Matthew – the Care ISA would appear to be a particularly good wheeze at avoiding IHT. I must say, I’m not a fan of the proposal and it seems like a lot of people are also strongly against it.

    You raise a good point about charity. Another way you can reduce your IHT bill is if you give more than 10% of the net estate to charity. The tax rate drops from 40% to 36%. For readers wanting to bequeath to charity is it something to look into and plan around.

  • 4 Matthew September 19, 2018, 10:53 am

    Although an inheritor who invests should have more credit than one that simlly spends a dwindling pot of cash, although i think better off kids are given a better financial eduation which itself could be worth more than the cash

    I.e. Trump wouldve been worth 3-4x the amount he is now had he simply tracked the s&p500 rather than running his own business, so a better education wouldve given him much more mileage

    Also id much rather have my parents around and share life’s journey than retire early

    I think people feel that without iht money wobt ever leave families, although even if it doesnt it still gets invested, helping to create jobs

  • 5 Gentleman's Family Finances September 19, 2018, 12:54 pm

    My view is that Inheriting money is bad – bad for those who receive it (they haven’t earned it), bad for those who die (besides being dead, but it leads to a lot of older people being worth more to their families dead than alive) and to those who don’t inherit (me 🙂 and many others).
    If tax needs to be paid, the ridiculous tax benefits of inheritance mean that the burden falls on other people – that can’t be fair in my view. It is also a good question of why you need to die before you relinquish your assets.

    On an anecdotal level, I come from a large and generally poor family – I’ll end up with one fifth of not much. I have cousins who will inherit over half a million pounds – which given their lazy careers is probably equivalent to 30-40 years wages (after tax).
    How is such a situation fair?

    The one thing that I can say is that I generally have got my money through hardwork, sacrifice, deviousness and opportunism. I haven’t resorted to trying to win the who your parents are lottery or to marry a rich spinster of failing health- although maybe that would have been an easier route to riches!

  • 6 Dave September 19, 2018, 1:21 pm


    My understanding is that if the inheritance is from someone who is not a UK taxpayer ,then there is no IHT applicable, even if you are a UK taxpayer. Would be grateful if you could confirm this?

  • 7 TheFireShrink September 19, 2018, 1:25 pm

    I’m pretty strongly against Inheritance Tax in all it’s forms, as to me it’s an excellent method for a broke government to claw money at a time when it’s difficult for people to say no. The argument that it’s a weapon for reducing inequality doesn’t wash, as the truly wealthy are much more likely to park money offshore in companies and funds (or have accountants to do so), so you’re mainly pinching from the middle classes.

    But… I’m probably biased due to some massive historic family death duty bills.

  • 8 vanguardfan September 19, 2018, 1:30 pm

    I’ve always been confused by the throwaway ‘anyone can avoid inheritance tax’ that gets bandied about.
    I’m currently dealing with the death of a parent who has died with considerable IHT to pay. Hard to see how this could have been avoided (although, I should say, I am very relaxed about the large IHT bill). Gifts were made, to a point where the parent had divested all they felt was appropriate, whilst still leaving enough to pay for care, should it be needed. I think the issue of having to self insure for care definitely stops the cautious and responsible from giving away more money before death – the last thing they want is to land their heirs with large care bills.

    Personally, I favour taxing the recipients rather than the deceased. But mainly, I don’t understand the enormous passions roused by IHT, given the large nil rate band available. I don’t see my parents’ money as my entitlement.

  • 9 Mark Meldon September 19, 2018, 2:03 pm

    Whilst I don’t wish to be pedantic, it is the case that you can’t buy unit-linked whole life policies in the UK anymore (although many are still in force). The regulator effectively caused the death of these when commission payments on investment products was banned at the end of 2012.

    From the beginning of 2013, only ‘non-profit’ whole of life policies were offered; these are akin to term assurance, but without a ‘term’.


  • 10 Stefano September 19, 2018, 2:29 pm

    Congrats on the new writing gig. Quick question on the ‘Discounted Gift Trust’. Is this another term for ‘Bond Wrapper’? I was looking to protect all my assets and my lawyer mentioned the Bond Wrapper (instead of an offshore trust). I believe this trust could be a more ‘sociable’ way of protecting your assets (even the courts can’t touch you), instead of anyone signing a pre-nup? – hope I haven’t gone off topic.

    Also, my parents will likely downsize to mitigate a little bit of that IHT.

  • 11 vanguardfan September 19, 2018, 2:31 pm

    My understanding was that putting assets in a trust doesn’t necessarily mean they are immune during divorce proceedings

  • 12 Stefano September 19, 2018, 2:44 pm

    Ok, thanks vanguardfan. My lawyer was a bit vague, I don’t think it was his area of expertise.

  • 13 vanguardfan September 19, 2018, 2:47 pm

    Nor is it mine, I think I read something about it in the FT….

  • 14 Mark Reynolds September 19, 2018, 3:14 pm

    @Gentleman’s Family Finances

    ‘ I haven’t resorted to trying to win the who your parents are lottery’
    I’m not so scrupulous and more than happy to take this route to wealth. Any idea where I can buy a ticket? My current parents were dirt poor so willing to swop for a more prosperous pair.

    ‘Quick question on the ‘Discounted Gift Trust’. Is this another term for ‘Bond Wrapper’?’
    It is a bond wrapper but a very particular type of bond wrapper that has bells and whistles add on top.

  • 15 Gentleman's Family Finances September 19, 2018, 3:28 pm

    @ Mark Reynolds Give this a go https://en.wikipedia.org/wiki/Adult_adoption

  • 16 YoungFIGuy September 19, 2018, 3:30 pm

    @dave – It depends on whether the donor is deemed UK-domicile or not. If they are domiciled overseas then only UK assets are subject to UK inheritance tax. There are also several assets which are excluded such as an overseas pension. The rules on domicile are complex, so it’s worth seeking an expert – especially as there may be interaction with foreign tax rules. You can find a starters’ guide here: https://www.gov.uk/inheritance-tax/when-someone-living-outside-the-uk-dies

    @Vanguard fan, I agree with you on the: ‘anyone can avoid inheritance tax’ – which is why I tried to write things a little differently perhaps than is common. I’m also very sorry to hear about your loss, my condolences to you.

    @Mark Meldon – I’m very pleased to hear from you with your industry expertise. Thank you for sharing something I didn’t know!

    @Stefano – Yes, a Discounted Gift Trust is kind of an ‘exotic’ bond wrapper arrangement. The basic operation of a DGT is that you gift capital into a discretionary trust and in return get to withdraw regular payments over time. These payments are considered, for tax purposes, to be repayment of capital. Because the payments have to be regular, the funds are invested in an insurance bond. At the outset, HMRC use actuarial tables to give you a life expectancy. Using this, they calculate how much capital will be ‘repaid’ over your deemed lifetime and in turn, this represents the ‘discount’ or the amount immediately not chargeable to IHT. You can read a bit more about it here: https://www.pruadviser.co.uk/knowledge-literature/knowledge-library/discounted-gift-trust/

    With regards to divorce, vanguardfan is right in that stashing money into a trust doesn’t necessarily protect the money in divorce. There are no hard and fast rules, much will turn on the discretion provided to the trustees when setting up the trust. I’m not a solicitor, and it’s a complicated bit of law, so if it’s something you are contemplating do speak to a specialist trusts solicitor.

  • 17 Scrooge September 19, 2018, 4:40 pm

    IHT affects very few (4%of estates). By 2020/21 the last survivor of a married couple will have a potential (effective) Nil Rate Band of £1 million (2 X 325k + 2 X 175k). That’s a sizeable tax free chunk to pass on to someone who presumably hasn’t earned it. Taxing any balance @ 40% doesn’t look too greedy. No one likes paying tax (do they?) but in our society where we expect the “State” to provide so much; they are a necessary evil. Taxing someone’s estate when they’ve finished with it seems fair enough. In situations where offspring provide end of life care without support from the “State” then arguably they would have earned their inheritance and IHT could be considered unfair.
    But £ 1 million would provide a LOT of end of life care.

  • 18 factor September 19, 2018, 5:16 pm

    A retired “bean counter” myself, my first port of call for anything of a taxation nature, the “subtleties” of IHT included, is the annually produced Tolley’s Tax Guide (no connection to the authors etc, other similar products available etc). A tad pricey but bought for me by family members as a group Xmas present, from somewhere in the Amazon or so they tell me : )

  • 19 The Investor September 19, 2018, 5:24 pm

    @all — Have amended the copy to reflect Mark M’s input and the clarification around divorce. Hopefully we all understand this is a vast, nay labyrinthine, subject, fraught with legal issues, and even a very efficient overview can only offer a taster of the possibilities.

    As for those saying IHT is fair and so forth, I couldn’t agree more. See my thoughts linked to in the first paragraph that TDM thoughtfully linked through to! 🙂

    However most of you have disagreed with me over the years, and so it’s clearly a relevant and interesting topic.

  • 20 Ianh September 19, 2018, 5:31 pm

    Thanks for the article @DetailsMan. An aspect of the IHT relief on your house, I believe, is that if you have sold up before you pop your clogs, your estate can still claim the same relief (if you sold up after the rules came in). Is that right? What bothers me about it is how to ensure the executors for your estate know to make the claim if the property was sold years before you die, as I don’t suppose HMRC will send them a reminder and a bunch of flowers once one stops paying income tax. And what evidence they would need?

  • 21 YoungFIGuy September 19, 2018, 5:37 pm

    @factor – and if you’re lucky your local library may have a copy or similar if you want an exciting and cheap day out…

    p.s. I actually went to a library and had an old, I think, Telegraph, tax guide to make sure I wasn’t saying anything incredibly stupid.
    p.p.s ‘subtleties’ made me laugh – inheritance tax is painful! (why did I volunteer to write about it?!)

  • 22 The Details Man September 19, 2018, 6:35 pm

    @Ianh that’s right – though the rules are complicated.

    I’ve found a handy reference guide on the .gov website: https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

    (they helpfully, like me, say: The downsizing rules are complicated. This guide explains the basic rules, but it can’t cover the more complex situations, for example, where trusts are involved. You might want to get professional advice about how to work out the additional threshold in these situations.)

    The important thing is to keep really good records (as with most things in life – says the accountant…)

    p.s. I’ve now managed to past computers and appear as The Details Man!

  • 23 Stefano September 19, 2018, 7:52 pm

    @Mark Reynolds – Thanks for the heads up. Bells and whistles, love it

    @The Details Man – Appreciate the detailed explanation, it’s gold. I have the web link you provided bookmarked and my next task is to find a good trusts solicitor.

  • 24 Naeclue September 19, 2018, 9:21 pm

    I have looked at trusts from time to time and always come up with the same conclusion. They seem to be expensive to run in terms of potential on-going taxes, IFA setup fees and insurance provider fees (I know insurance “bonds” are not strictly required, but often the route used) and that is before you get to the investment fees which can be higher than ETFs, etc. that can be held in regular accounts/ISAs/SIPPs. Then there is the additional tax form admin and headache in working out which is the best sort of trust to use, which might change according to circumstances and changes in trust legislation and tax. And making sure whoever is trustee sticks by all the rules. Again you can hand all this over to an IFA for another fee. I begrudge handing all this cash over to financial intermediaries. I would prefer it went to the taxman than them. Anyone thinking of going down the trust route should look at all the ongoing costs that will come out of investment returns before signing on the dotted line.

    Our approach is to fully pay into our kids’ ISAs each year while they cannot utilise the annual allowances themselves, with the unwritten agreement that we might at some stage need some of the money back! We will also help them out when the time comes with property purchase or finance to start their own businesses if that is what they want to do. We would much prefer to help them out before we die even if that does mean we take risks with our own retirement finances.

    No guarantees the kids will not die before us of course. Tragic though it is, I just have to look across my own relatives and friends to see that it is far from a rare occurrence.

  • 25 Richard September 19, 2018, 9:29 pm

    Surely it is, to an extent, a zero sum game. If the government takes your inheritance or if you take it, in both cases it will be spent into the economy and will circulate around and be taxed and spent and taxed and spent an infinum. Or it will be used to create more debt, or it will be used to grow companies etc. I wonder if anyone has ever analysed the economic impact of the government spending the money vs the individual.

    If this is the case it really becomes a question of perceived fairness (I worked hard, I want my children to have it vs why should lazy child get all that free money).

    On a similar line, what IHT is due on say a family business a parent runs? Can the child just assume control (and get the income stream) with nothing to pay? Even if the buisness would sell for many millions

  • 26 weenie September 19, 2018, 9:33 pm

    Congrats on joining the Monevator team, YFG! Looking forward to reading more ‘details’!

    An interesting read, with the only part likely to affect me being the gift or transfer during a person’s lifetime, so that was good to know. Inheritance isn’t included in my financial planning (ie I’m planning to receive zero).

  • 27 Woodwork Guy September 20, 2018, 7:58 am

    How do you prove no IH tax is due, to whom, and when? Can this be done without incurring the services of a professional (accountant, solicitor, etc)? Finally what is the declaration statement from the HMRC called?

    Sorry for such basic questions. Thank you.

  • 28 The Details Man September 20, 2018, 9:07 am

    @Richard – it’s possible to pass down family businesses IHT free using Business Relief. You can read more about it from the link at the end of the post. It’s important to bear in my mind that it must be a trading business (rather than an investment vehicle).

    @Naeclue – Unfortunately, trusts can be quite expensive (as I can personally vouch for). It’s not a route to lightly go down, and there are many options available. I think your approach sounds really sensible. And it’s lovely to see you helping your kids!

  • 29 Vanguardfan September 20, 2018, 10:48 am

    @woodwork guy. Most estates (some low value estates are exempt) are required to obtain a grant of probate (in england). You have to pay the IHT due before probate is granted – so that’s how its captured. You need the grant of probate to access the assets. Its possible to apply for probate without an accountant or solicitor, if you are confident about that kind of thing (its the reponsibilty of the executor(s)).
    One practical difficulty is that you need to stump up the tax BEFORE you can access assets – so its worth thinking about how your heirs would do this and making arrangements accordingly.

  • 30 John B September 20, 2018, 5:41 pm

    I think you can pay IHT from cash in the deceased’s bank account (or a special executor’s bank account), but beware banks that freeze savings accounts. But you can’t liquidate share equity until probate is granted, which requires the IHT to have been paid, a Catch 22. IHT on property can be paid in installments over 10 years. Otherwise you need to pay from your own funds and claim it back

    So its worth discussing the financial position with anyone you are executor for, and generating a plan. For a slow decline, I guess if you have a Financial LPA you can claim loss of competence and sell assets in advance, but its risky if the decline is physical and not mental. Using ISA withdrawal and refill in the same tax year might be a way to get access to large sums of your own cash.


  • 31 Gordon September 20, 2018, 6:42 pm

    My parents are putting money into forestry at the moment to reduce their (our) IHT liability. OK forestry is IHT free, however if you have to sell assets to buy the forestry and crystallise a capital gain the tax saving isn’t perhaps that large… I’d also argue that the returns on assets like forestry and farmland are poor as so many people buy the asset for IHT purposes….

    IMHO, I think IHT is a “fair” tax but at 40% it’s too high. If IHT was at say 15% for ALL estates over a million I don’t think it would be so unpopular. As it is people like the Duke of Westminster inherit £20 billion and pay no IHT as it’s in a trust. I’m no communist, however it’s wrong for someone to inherit so much and pay no IHT.

  • 32 Steven21020 September 20, 2018, 6:51 pm

    –“If this is the case it really becomes a question of perceived fairness (I worked hard, I want my children to have it vs why should lazy child get all that free money).”–

    I think that this is a very important and interesting point about inheritance. I’ve worked for half my life in France and Italy where comments like this would meet with incredulity, raised eyebrows and even violence. Their kids are part of them, part of the family, part of the ‘business’ and parents, especially in their twilight, see them as a continuation of themselves. Why shouldn’t their children take the family’s assets? Surely, what’s good for the royal family is good enough for us?


  • 33 Matthew September 20, 2018, 8:32 pm

    I think whether or not 40% is high or not depends on how it will be invested afterwards – an equities investor would bounce back from it after a few years as if nothing was ever taken, whilst cash is gone
    For me when it comes to me it will be too late to be helpful and if it is taxed it doesn’t really change the plan, might ask my parents to name my son rather than me so as to skip a 40%

  • 34 Hari Seldon September 20, 2018, 8:35 pm

    Trusts are a tedious affair to administer or very expensive if you have to pay for it.

    I am handling a Trust for the three children of friends ( couple who both died tragically young and within a short period )

    The probate was fairly straightforward but the tax aspects of the trust have been incredibly tedious. HMRC staff whilst helpful clearly know very little of the technical details and offen contradict one another.

    Resolving an issue with a prior year took almost a year…(resolutions equals a short letter saying that they consider the matter closed, end of)

    Clearly professional advice would have made life much easier but the limited assets and nature of this matter mean that zero admin cost is the priority.

    I would caution against trusts unless the size of the assets justify first class professional help.

  • 35 dearieme September 20, 2018, 9:42 pm

    “IHT affects very few (4%of estates)”: that’s plain unknowable. What’s presumably meant is that only 4% of estates have, in the recent past, paid IHT; that’s a quite different claim.

    What about the estates that will be affected, in the sense that precautions will be taken to avoid IHT? More than 4% by a factor of what? Four or five, maybe?

  • 36 Matthew September 20, 2018, 11:06 pm

    I think to a certain extent helping kids out with inheritance is reasonable, but too much and they won’t have felt like they achieved anything or appreciate what they’ve got, you could buy them earlier financial independence, but there’s only so much a reasonable instant retirement could cost, beyond that the numbers become a bit meaningless, and I think even kids that you want to give early fi to need to experience some work to appreciate it or feel normal or do something with life, and nomatter how much you give them they could always blow the lot if so inclined

    So when the super rich shield millions from iht, I think it’s pointless

  • 37 Neverland September 21, 2018, 7:09 am


    I have come across a lot of rich kids who are financially independent under various definitions.

    Oligarchs children to go Eton and study for MBAs.

    The age of the trustafarian is dead they all want to be Elon Musk now.

  • 38 Fremantle September 21, 2018, 1:46 pm

    To put it in perspective IHT raises less than 1% of government revenue. Punitive IHT still wouldn’t raise that much tax and abolition would not lead to much of a reduction in tax receipts.


    Simplifying tax to broaden the tax base and minimise loop holes and parasitic costs of tax minimisation would do more to enrich everyone.

  • 39 cb1nz September 22, 2018, 1:00 pm

    Ok – so this is slightly beside the point, but, don’t forget that anything left to charities is not taxed, and if you leave at least 10% of your net estate to charity, then IHT is reduced to 36% on the remainder of your net estate. It does of course mean that there is less left over for other beneficiaries, but, if a prime motivation is paying less tax overall on the priniciple of putting the government’s nose out of joint (and one might be surprised just how motivating that is for some people making charitable donations!) then this should not be ignored!

  • 40 Nearly There September 25, 2018, 7:20 am

    The theory that IHT is paid by the estate (when due) doesn’t match the practice that the beneficiaries have to stump it up, just like an advanced free fraud, to release probate to release the estate. Many banks participate in HMRC’s Direct Payment scheme, which avoids the problem, if the balances are enough to pay the tax due. Some building societies participate too, but probably not all. And not enough brokers do – Fidelity used to but silently stopped, so choosing a broker for this is no guarantee that it will be available when the time comes.

  • 41 Nearly There September 25, 2018, 7:58 am

    Re trusts: some are trivial and zero cost while others are not. Many life policies will come with a simple form to complete to say who should get the money, sign and return. Some may make you identify trustees, but their task is usually straightforward. These can be very cheap (free) simple and effective, so long as it is actually done. Then there are trusts set up by professionals that can leave bereived beneficiaries with a nightmare of complexity, costs, uncertain tax situations, more costs for impossible to find professional this that and the others, and stress – lots of stress. And there is probably everything in between too. Not all trusts are equal. Broad and unqualified statements about trusts can be misinterpreted in other contexts. The article covers several types of trust, some of the comments about trusts apply only to certain types.

  • 42 Mark Meldon September 25, 2018, 9:32 am

    Over the last 25+ years, I have seen so-called ‘IHT Solutions’ come and go – once boundaries are touched, legislation changes. Someone above said that trusts are a nuisance and I agree – why? Well ‘things’ change! It’s just fine to write a simple life insurance policy into a trust but when things like property mutual funds and investment bonds become involved, I tend to back off, despite the theoretical advantages these structures might have. Things change and the money might be unexpectedly needed which is impossible/difficult to do as busting a trust is not going to happen.

    I always ask ‘how much did you inherit?’ and the answer is often ‘nothing’ from Baby Boomers. They have juicy defined benefit pensions, vast property (paper) wealth, investments, etc and often have excess income over expenditure.

    So what to do? Simple – give chunks of money away and use uncontestable life insurance to cover potentially exempt transfers and whole life for the rest. This is good, as the tax gets paid but the estate is preserved. Be prepared to pay up (it’s interesting how many just won’t – fear of underwriting and confronting their mortality, perhaps?) and hand over the cash to your kids who probably still have a huge mortgage in their 50s and impoverished children in early adulthood, too.

    Or sew some pockets in your shroud!

  • 43 The Details Man September 25, 2018, 10:23 am

    Nearly There, Mark. Thanks for these thoughtful comments, which I 100% agree with.

    From talking about IHT to people (I bet you’ve talked to many multiples more Mark) it would appear that two things come to play. People don’t like giving their money away (and/or getting insurance) because they perceive themselves to have lost control (to the beneficiary or to some insurer). The second is that there is a temptation to find a complex solution to a complex solution. Overlooking the simple and obvious – giving money away.

  • 44 Mark Meldon September 25, 2018, 12:41 pm

    @The Details Man,

    Thank you! One reason that those with significant financial assets often find it hard to give money away isn’t so much a control issue, IMHO, it’s because they often grew up in straightened circumstances during and just after WWII; grinding poverty is a memory they find hard to shake. I spend a great deal of time talking to people about this and like to describe a ‘bridge’ over which they might choose to cross. On this side they are (materially) rich and worry about their money and investments (a truly significant and pointless problem as people age) – my job, I think, is to endeavour to help them journey across the bridge. On the far side, they have accepted the (spiritual?) need to make lifetime gifts so they can (discreetly) enjoy seeing their planning/generosity being put to productive and good use whilst they are alive, whether that being family, friends or strangers via philanthropy. It’s wonderful to see the weight lift off those shoulders when the journey across ‘The Bridge of Gifts’ has been made!

    Sure, some can’t or won’t even contemplate looking at the bridge, but I choose not to deal with those poor souls, even though I think there is a bit of good in everyone.

    At the end of the day, I’m with Jonathan Ruffer (www.ruffer.co.uk), a great philanthropist in N.E. England I believe, who said a while ago that no-one in the UK really needs much more that £2m in assets as that can easily produce enough income to live on. I mean, I have met people in their 80s with incomes of £100k a year and they want even more – they REALLY don’t NEED this!

    People have forgotten to distinguish needs and wants in this materialistic world – remember, we are all dead in the long-run, as Keynes once said .https://en.wikiquote.org/wiki/John_Maynard_Keynes

    I agree with you that simplicity is a powerful and sophisticated financial tool, well worth paying for – Occam’s ‘Razor’ in action https://en.wikipedia.org/wiki/Occam%27s_razor


  • 45 Matthew September 25, 2018, 3:06 pm

    @mark – are gifts the most charitable use of money though? Since it is doing good in a less visible way invested – providing liquidity for businesses and governments (providing liquidity for the secondary stock and bond markets), providing jobs, including in poorer countries – the forces of capitalism might be more efficient at deploying and reinvesting that money than a charity that doesnt have the pressure of making profit

  • 46 Fremantle September 25, 2018, 3:42 pm


    An individuals assets are theirs to do with what they see fit within the confines of taxes and the law.

    The stock exchange is a secondary market for equities and rather than provide liquidity for businesses, provides liquidity for other investors. This of course enables businesses to raise capital, or more importantly provide entrepreneurs with an opportunity to realise the capital gains of their own endeavours through dilution of ownership and sharing of future profits and capital gains.

  • 47 Nearly There September 26, 2018, 8:21 am

    @Mark i have met several IFAs and none of them like you, unfortunately. They wanted to sell complex stuff with high fees to get taxes to zero. Of course they wanted to use potentially exempt transfers because everyone knows about them. But we had to suggest converting portfolio to income generating and bleeding out excess income free of tax to recipients and with the giver able to see the benefits given in their lifetime. This didn’t get a great reception from any of the IFAs (‘well, you could do that, but be careful of the paperwork as you have to prove that it really is excess income’, but HMRC have a simple form with everything laid out). In the end we ignored all the IFAs but also never quite got across that bridge. How do you find the likes of Mark in the pool of IFAs? He seems to be a rarity.

  • 48 Mark Meldon September 26, 2018, 3:01 pm

    You are very kind!
    I know a few IFA’s who are more interested in their clients than their clients money but, alas, only a few.

    Best idea is word of mouth from friends, accountants and lawyers, with the latter, rightly, being rather picky about who they let loose on their clients!

  • 49 Gizzard July 10, 2022, 9:38 am

    Where did you get the the “2x£175k” figure? I understand the 2x£325 figure though.

    According to the Telegraph article someone provided the link for (copied below) the nil rate band is £650k on the death of the second spouse…

    “Estates attract inheritance tax by being worth more than the allowance (or nil rate band). An individual’s allowance is £325,000 and a married couple get twice this allowance – £650,000 – applying at the death of the second spouse.”

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