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Tax-efficient estate planning

A robust financial planning strategy should include a tax-efficient estate plan. If your estate is large it could be subject to inheritance tax (IHT). However, even if it is small, planning and a well-drafted Will can help to ensure that your assets will be distributed in accordance with your wishes. IHT is currently payable where a person’s taxable estate is in excess of £325,000.

Use this handy table to help you plan:

Estimate the tax on your estate exit
Value of: Your home (and contents)  
Your business1  
Bank/savings account(s)  
Stocks and shares  
Insurance policies  
Other assets  
Total assets  
Deduct: Mortgage  
Other debts  
Total liabilities  
Net value of assets  
Add: Gifts in last seven years2  
- 325,000
Taxable estate £  
Tax at 40%3 is £  

1 If you are not sure what your business is worth, we can help you value it. Most business assets currently qualify for IHT reliefs

2 Exclude exempt gifts (eg. spouse, civil partner, annual exemption)

3 Subject to a taper relief for gifts between 3 and 7 years before death

A Will to prepare

If you own such possessions as a home, car, investments, business interests, retirement savings, collectables, personal belongings, etc, then you need a Will. A Will allows you to specify who will distribute your property after your death, and the people who will benefit. However, many individuals either do not appreciate its importance, or do not see it as a priority.

If you have no Will, your property could be distributed according to the intestacy laws.

Formulating an estate plan that minimises your tax liability is essential. The more you have, the less you should leave to chance.

We can work with you to ensure that more of your wealth passes to the people you love, through planned lifetime gifts and a tax-efficient Will.

Drafting a Will

Start by considering the following questions:


Who do you want to benefit from your wealth? What do you need to provide for your spouse? Should your children share equally in your estate - does one or more have special needs? Do you wish to include grandchildren? Would you like to give to charity?


Should your business pass to all of your children, or only to those who have become involved in the business, and should you compensate the others with assets of comparable value? Consider the implications of multiple ownership.


Consider the age and maturity of your beneficiaries. Should assets be placed into a trust restricting access to income and/or capital? Or should gifts wait until your death?

Considering IHT

You should ensure that you make the best use of the available

IHT exemptions, which include:

  • the £3,000 annual exemption
  • normal expenditure gifts out of after tax income
  • gifts in consideration of marriage (up to specified limits)
  • exemption for gifts you make of up to £250 per person per annum to any number of persons
  • exemption for gifts between spouses, facilitating equalisation of estates. but transfers on or within seven years of death to a spouse domiciled outside the uk, and without a domicile election in place, are exempt only to the extent of £325,000.


IHT is normally charged on the net value of the estate after taking into account liabilities outstanding at the date of death. Changes to what is allowed to be deducted mean that revisiting previous IHT planning may be appropriate; in particular where the liability has been incurred to acquire assets on which Business Property Relief or Agricultural Property Relief is due or where the assets are excluded from the charge to IHT. The latter point will be of particular concern to non-domiciliaries.

Spouses and civil partners

On the first death, it is often the case that the bulk of the deceased spouse’s (or partner’s) assets pass to the survivor. In the past this has meant that some or all of the nil-rate band (the IHT ‘exemption’, £325,000 for 2014/15 - frozen until April 2018) was wasted unless a nil-rate band trust had been included in the Will.

The percentage of the nil-rate band not used on the first death is added to the nil-rate band for the second death.

Case Study

Daniel and Andrew were civil partners. Daniel died in May 2008, leaving £50,000 to his more distant family but the bulk of his estate to Andrew. If Andrew dies in 2015/16 his estate will qualify for a nil rate band of:

Nil-rate band on Daniel’s death
Used on Daniel’s death
Unused band
Unused percentage
Nil rate band at the time of Andrew’s death
Nil-rat band for Andrew’s estate

This ability to carry forward the nil-rate band unused on the first death means that nil-rate band trusts no longer form such an important part of Will planning, but giving your executors some discretion over the destination of part of your estate will build in some flexibility.

If you die within seven years of making substantial lifetime gifts, they will be added back into your estate and may result in a significant IHT liability. You can take out a life assurance policy to cover this tax risk if you wish.

However, you can make substantial gifts out of your taxable estate into trust now, and as a trustee retain control over the assets (this may well be subject to CGT or IHT charges).

Gifting to reduce liability

Business assets

Under current rules, there will be no CGT and perhaps little or no IHT to pay if you retain business property until your death. This is fine, as long as you wish to continue to hold your business interests until death, and recognise that the rules may change.

Alternatively, you may wish to hand your business over to the next generation. A gift of business property today will probably qualify for up to 100% IHT relief, and any capital gain can more than likely be held over to the new owner, so there will be no current CGT liability.

If business or agricultural property is included in the estate, it may be appropriate to leave it to someone other than your spouse; otherwise the special reliefs will be lost.

Appreciating assets

Gifts do not have to be in cash. You could save more IHT and/or CGT by gifting assets with the potential for growth in value. Gift while the asset has a lower value, and the appreciation then accrues outside your estate.

Gifting income

Another way to build up capital outside your own estate is to make regular gifts out of income, perhaps by way of premiums on an insurance policy written in trust for your heirs. Regular payments of this type will be exempt from IHT, but please note that your executors may need to be able to prove the payments were (a) regular and (b) out of surplus income so you will need to keep some records to support the claim.

Charitable gifts

Gifts to charity can take many forms. Perhaps you are already making regular donations to one or more charities, coupled with one-off donations in response to natural disasters or televised appeals. Here we look at some of the ways you can increase the value of your gift to your chosen charities through the various forms of tax relief available.

Gift Aid

Donations made under Gift Aid are made net of tax. What that means is that for every £1 you donate, the charity can recover 25p from HMRC. Furthermore, if you are paying tax at the 40% higher (45% additional) rate, you can claim tax relief equal to 25p (31p).

Consequently, at a net cost to you of only 75p (69p additional rate), the charity receives £1.25.

A payment made in the current tax year can, subject to certain deadlines, be treated for tax purposes as if it had been made in 2013/14. This may not appear important to many people, but if you paid additional rate tax in 2013/14 and do not expect to do so this year, a claim will allow you to obtain relief at last year’s rate. (Note: The carry-back election must be made before we file your 2014 Tax Return - another example of the importance of keeping us ‘in the loop’.)

You must pay enough tax in the relevant year to cover the tax the charity will recover (that is, 25p for every £1 you gift).

Payroll giving

You can make regular donations to charity through your payroll, if your employer agrees to operate the scheme.

The scheme operates by deducting an amount from your gross pay equal to the net cost to you of the monthly net donation you want to make.

Gifts of assets

Not all donations need to be money. You can make a gift of assets, and if the assets fall within the approved categories the gift can obtain a double tax relief. Any gain which would accrue on the gift is exempt from CGT, and you are also entitled to income tax relief at up to 45% on the value of your donation.

Unmarried or single?

Single people might not have given much thought to estate planning, but you should make a Will to set out your preferred funeral arrangements, how you want your estate to devolve on your death, and who will have responsibility for it.

Your estate might pass to your parents or your siblings, but would you perhaps prefer to leave your wealth to your nieces and nephews - with the bonus of potential IHT savings through ‘generation skipping’? A Will is also vital for anyone who, although legally ‘single’, has a partner they wish to benefit from their estate on their death.

A second marriage

Parents face a different set of challenges in second (or subsequent) marriages, with children from former and current marriages. If both partners are wealthy, you might want to direct more of your own wealth to children of your first marriage. If your partner is not wealthy, you might wish to protect him or her by either a direct bequest or a life interest trust (allowing your assets to devolve on their death according to your wishes). Should younger children receive a bigger share than grown up children, already making their own way in the world, and should your partner’s children from the previous marriage benefit equally with your own?

If you are concerned about your former spouse gaining control of your wealth, consider creating a trust to ensure maximum flexibility in the hands of people you choose.

You need to plan to ensure that your partner is properly provided for. Look at your Will, pension provisions, life insurance and joint tenancies.

The generation gap

Your children may be grown up and financially secure. If your assets pass to them, you will be adding to their estate, and to the IHT which will be charged on their deaths.

Instead, it might be worth considering leaving something to your grandchildren.

Updating your estate plan

Estate plans can quickly become out of date. Revisions could be due if any of these events have occurred since you last updated your estate plan:

  • the birth of a child or grandchild
  • the death of your spouse, another beneficiary, your executor or your children’s guardian
  • marriages or divorces in the family
  • a substantial increase or decrease in the value of your estate
  • the formation, purchase or sale of a business
  • retirement
  • changes in tax law.

Planning tools: your Will

A Will is a powerful planning tool, which enables you to:

  • protect your family by making provisions to meet their future financial needs
  • minimise taxes that might reduce the size of your estate
  • name an experienced executor who is capable of ensuring that your wishes are carried out
  • name a trusted guardian for your children
  • provide for any special needs of specific family members
  • include gifts to charity
  • establish trusts to manage the deferral of the inheritance of any beneficiaries
  • secure the peace of mind of knowing that your family and other heirs will receive according to your express wishes.

Having taken the time to make a Will and prepare an estate plan, you must review them regularly to reflect changes in family and financial circumstances as well as changes in tax law.

Wills can also be re-written by others within the two years after your death, in the event that some changes are agreed by all concerned to be appropriate.

With regular reviews we can help you to ensure that you make the most of estate planning tax breaks.