IHT Health Check: Top Tips from Mellor Oxland
1. Make a Tax Efficient Will or Review Your Current Will for Tax Efficiency
  • Whilst everyone’s circumstances are different, you might wish to check that your Will is set up in the way that is most likely to ensure that your assets ultimately pass to those who you wish to benefit whilst still retaining inheritance tax efficiency. 
  • Do you own assets that may qualify for Business Relief, such as shares in an unlisted company? If so, does your Will maximise the inheritance tax efficiency of those investments?
  • Does your Will ensure that the Residence Nil Rate Band will be available as far as possible?
  • If you are thinking about leaving significant legacies to charity have you made sure that the level of charity donations stipulated is sufficient to enable your estate to qualify for the reduced inheritance tax rate of 36%? 
2. Review the Value of Your Estate and Calculate What Your Exposure to Inheritance Tax Might Be
  • Many people are familiar with the Nil Rate Band of £325,000 per person, but do you know if your estate will also qualify for the Residence Nil Rate Band?
  • In brief, the Residence Nil Rate Band is an additional nil rate band that may apply where a main residence is left to direct descendants and could mean that a married couple/civil partners could leave a joint estate of £1 million in total without inheritance tax being incurred, depending on circumstances.
  • However there are conditions which need to be met in order to secure this valuable relief and the relief is tapered for estates worth over £2million.
  • Gifts later in life can still be effective for the purposes of securing the Residence Nil Rate Band even where the “seven year clock” is unlikely to be met. 
3. Review Your Gifting Strategy
  • Are you making use of all of the exemptions available to you?
  • Certain gifts are immediately exempt for inheritance tax purposes. For example, are you using your £3,000 annual exemption each year? Unused allowances can be carried forward for one tax year.
  • Additionally, regular gifts out of surplus income may qualify as immediately exempt for inheritance tax purposes. But do you know what your surplus income is?
  • Gifts which are not immediately exempt start a seven year clock. If you do not survive for seven years from the date of gift, the value of the gift at the time it is made, falls back into your estate for inheritance tax purposes. However, any growth in value is immediately outside of you estate.
  • A note of caution - unless gifts are of cash, there are likely to be capital gains tax implications from the gifting of assets and so advice should be taken to ensure that you do not end up with an unintended tax bill.
  • If you are reluctant to gift outright, a gift into trust might be an appropriate alternative - use of a trust may help you retain some control over the assets and could help to protect the assets from future relationship breakdown, for example. 
  • As an alternative to, or as well as, leaving charity donations in your Will, lifetime gifting to charities is immediately exempt from inheritance tax. You may also be able to obtain higher rate tax relief if you donate under the gift aid scheme, depending on your circumstances. You do need make sure you have paid enough income tax or capital gains tax in the year to cover the tax reclaimed by the charity if giving under the gift aid scheme.
4. Check Your Existing Life Cover*
  • Does this cover the value needed?
  • Is the policy written into Trust?
  • When does the term end?
  • If you do not have cover in place already, could this be a good “stop gap measure” for you if you are not yet ready or in a position to make significant gifts?
5. Consider How Your Pension Fund Fits Into Your IHT Strategy*
  • Pensions are not generally subject to inheritance tax and so depending on the nature of your pension fund, it may be preferable from an inheritance tax perspective to utilise other assets to fund your retirement where possible. This would potentially reduce your estate for inheritance purposes as well as potentially preserving your pension fund to pass on inheritance tax free to your beneficiaries.
  • Is your pension nomination form up to date?
6. Speak to Your Financial Adviser to Discuss Whether There Are Any “IHT Efficient Investments” That Are Suitable for Your Financial Circumstances*
  • Whilst we are prohibited from giving any investment advice, the nature of these investments makes them higher risk and so we cannot stress enough the importance of obtaining advice from a suitably qualified financial adviser.
7. Make a Lasting Power of Attorney
  • Whilst not directly relating to your inheritance tax position, this relatively simple form could make a difficult time easier for your loved ones should you be unable to make financial or health decisions for yourself.
*We are not authorised to provide investment advice and you should consult your financial adviser for advice in connection with an existing or new life insurance policy, pensions and investments before taking any action.