Mitigating Inheritance Tax

Apr 26, 2023 | Estate Planning, Retirement, Tax, UK

Mitigating Inheritance Tax: How to Reduce Your Estate’s Tax Burden

Inheritance Tax (IHT) can be a significant burden on your estate, potentially reducing the amount you can pass on to your loved ones. However, there are a number of strategies you can use to mitigate your IHT liability and ensure your estate is distributed as you wish. In this article, we will explore some of the most effective ways to reduce your estate’s tax burden.

Plan Your Estate Early

One of the most important things you can do to mitigate your IHT liability is to start planning your estate early. This gives you the time you need to implement the strategies that will be most effective for your situation. It also allows you to take advantage of any changes to the IHT rules that may occur over time.

Consider Making Lifetime Gifts

You may want to consider making lifetime gifts. Gifts made more than seven years before your death are generally exempt from IHT from a UK perspective. Should you reside outside of the UK, there may be further tax to pay depending on the gift and succession tax applicable in your country of residence.

Example: Jane gives her son a gift of £50,000. As long as she lives for at least seven years after making the gift, it will be exempt from IHT in the UK, reducing the value of Jane’s estate and her potential IHT liability from a UK perspective. Should Jane reside in a country that taxes gifts, double taxation would be avoided in this case and only gift tax will apply in her country of residence.

Use Trusts

Trusts can be a powerful tool for mitigating IHT liability. Transferring assets into a trust can remove them from your estate and potentially reduce your IHT liability. Many types of trusts are available, each with its own benefits and drawbacks.

Example: Tom transfers his investment portfolio into a trust. As long as he does not retain any control over the assets in the trust, they will be exempt from IHT. This reduces the value of Tom’s estate and his potential IHT liability.

In some EU countries that are subject to civil law, trusts are often not recognised. In these scenarios, a contract base must be used so that it is compliant with the country where the client resides. In certain scenarios, a QNUPS may be used.

If you need help mitigating your IHT liability, SJB Global can provide guidance on the strategies for your situation. Our experienced team can help you navigate the complexities of estate planning and identify solutions to reduce your tax burden. Contact us today to learn more about how SJB Global can help you benefit from these strategies and work toward your financial goals.

SJB Global does not provide legal, accounting, or tax advice. You should consult a legal and/or tax professional to discuss tax and legal matters.

This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

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By scheduling an appointment with an adviser they will reach out to you at your requested time. 
Personal advice, whenever it suits you.

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