Before you write your Will, speak to a professional adviser

Speaking to a financial planner can help to minimise your Inheritance Tax liability.

Write (or update) your Will

Let’s say that after reading some of our other blogs about Wills you initiated a difficult conversation with your family about what you want to happen to your money if the worst happened.

You thought carefully about who your beneficiaries are going to be.

You talked to family members, so they understand how you intended to distribute your assets.

You even discussed with them how you want your money to be handled, in case you were incapacitated.

You are now much closer to writing (or updating) your Will.

But there is still one issue to consider, before finalising your financial arrangements.

It could change everything.

What is the Inheritance Tax threshold?

If your estate is worth above a certain level – currently £325,000 per person – HMRC can tax anything above that threshold at 40%, after you die. That’s called Inheritance Tax.

You need to understand exactly how your financial arrangements will work with Inheritance Tax.

The reality is that most people want to do whatever they can - within the law – to minimise their Inheritance Tax liability.

You’ve worked hard for that money. And you'd probably prefer to pass on as much of it as possible to your nearest and dearest, instead of to the Inland Revenue.

It could mean the difference between your children, if you have any, paying off their mortgage, or struggling financially for the next decade…

Or perhaps the difference between paying your grandchildren’s University fees one day, or having them start out life in debt.

The problem is that when you organise your financial assets, it can be hard to figure out the tax implications.

For example, you might imagine you should always leave your assets to a spouse, but there are scenarios where it can be more tax-efficient to leave them to children or grandchildren.

Or you might think that you should give as much money as possible away to your family, while you’re still alive, but in some cases that can still attract Inheritance Tax. It doesn’t always help!

Avoid paying unnecessary tax

The solution is another conversation.

This time, not with your family…but with a financial expert.

A good financial adviser deals with these scenarios day-in, day-out.

They will be able to help you understand the best way to arrange your assets – again within the law – so that your wishes are carried out, but your heirs avoid paying unnecessary tax.

Solutions might include offshore discounted gift trusts, life insurance policies and other mechanisms to legally minimise your IHT liabilities or make it easier to pay.

These are not just for the super-rich.  

They might apply to you (or perhaps to elderly parents), even if you only have a relatively modest exposure to Inheritance Tax.

But they are also solutions that you are unlikely to know about, or be able to implement easily yourself, unless you have a strong financial background.

The bottom line is this:

Inheritance tax can be a minefield

If you’re not careful with the way you arrange your assets, your estate might end up paying tens and even hundreds of thousands of pounds more in tax than is legally necessary.

This means your money will not be distributed in the way you would have wanted.

Isn’t it worth a 30- or 60-minute conversation with a financial adviser, to prevent that from happening?

To find out more about how to minimise your Inheritance Tax liability, read our free resource