RSJ Investment
RSJ Financial Planning
RSJ Investment

Inheritance Tax Planning


The aim of this chapter is to give a practical guide to Inheritance Tax Planning post the 2006 Budget, however we are not experts and you should always seek further advice from both your solicitor and accountant. RSJ Financial Planning is NOT qualified to give advice on matters of law. The contents of this section reflect our current understanding of the legislation.

Basics of Inheritance Tax

In the UK:
No tax to pay between spouses and civil partnerships
but on second death, or on the death of a single person, the estate is liable to IHT tax
estate then is valued taking into account:
all the assets - wealth
less those exempt (see later)
less any debts
less the Nil-rate allowance
Resulting surplus is taxed at 40%.

IHT tax applies to nearly all transfers of capital made at or within 7 years of death and is calculated on an accumulating basis.

Transfer of Assets between Spouses - No IHT tax but there can be Capital Gains Tax implications, so again seek advice before you act.

To Reduce Inheritance Tax

Product Details
Wills In Summary, they ensure that your wealth is passed on to whom you wish.
If you have children below the age of 18 you need, in the Will, to stipulate a Guardian for them.
Life Polices

Person on whom life is assured can be written into trust with the "beneficiary" being the Discretionary Trust.

Or could be your children if your spouse has sufficient assets from which to life comfortably

Personal Pensions Before taking the benefits the value of a personal pension passes tax free to your beneficiaries so if your spouse has adequate assets to provide them with the income needed then ensure that your pension plan passes to your children/grandchildren
Discounted Gift Trust A potentially exempt transfer where the settlor (you) invests in a single premium life bond:
fixed income is paid to the settlor for the remainder of their life. after seven years the value of the initial investment will be outside the estate an element is outside the estate on day one - the discount any gain on the investment is also outside the estate from day one


Making Use of Nil Rate Allowance

Many couples' overall wealth will probably not have sufficient liquid assets to make up the Nil rate allowance as the majority of their wealth is in their main home. So in these circumstances you can consider the change the ownership of your property to "Tenants in Common" so that on First Death that person's share of the property:
passes into the Discretionary Trust

The surviving spouse can continue to stay in the property

On their death when the property is sold there will be a Capital Gains Tax liability to pay on the part of the property held within the trust, but this tax liability only relates to only the increase in value (profit) since first death and not 40% of the whole value, as it has not been in the trust.

Exempt Gifts

You are able to make small gifts which are exempt:

Gifts Details
Annual Gifts by an individual up to £3,000 in any one year. You are also able to use last year's gift if not already used
Small Gifts up to £250 per beneficiary in any one year
Gifts out of Income Out of one's normal expenditure out of income (after deduction of Income Tax) which leave sufficient to maintain one's normal standard of living.
Gifts on Marriage within certain limits - gifts in consideration of marriage £5000 from parents
Gifts made to UK Charities And institutions such as National Museums and Art Galleries (seek advice for a full list).

if over the age of 75 the residual fund in Alternatively Secured Pension (ASP) plan can passed to one's children either be taxed at about 82% or passed Tax Free to a Charity.

if in drawdown, pension can be passed to children less 55% tax or to charity tax free.


It is sensible to keep a record of all gifts transactions.

Business Property Relief - certain Business, Agricultural assets and investments in some elements of the Alternative Investment Market (AIM) are, if held for more than two years, outside Inheritance Tax liability.

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