Inheritance tax blues

Posted by on 11th October 2019

by Kevin Wilks Director of Financial Resolutions Ltd

Take the headache out of those Inheritance tax blues ...

One of the best descriptions of inheritance tax (IHT) was written by former British politician Roy Jenkins when he declared that

“It is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue…”

In dealing with some clients recently with issues around the inevitable IHT bill expected to be charged on their estate when they pass away, it’s been very noticeable how reticent they’ve been to address the problem in the first instance. Of course, this plays into the hands of the Government on the basis that inaction on the part of the general public affected by this particular issue, usually ends up lining the treasury’s coffers to an increasingly large degree ….

There are lots of dynamics in play as to the reasons why people might not want to act. It may be that they are in their seventies or eighties and have sadly lost their husband, wife or partner in recent times, or even got divorced, and are therefore potentially in the most vulnerable position that they’ve ever been in during their lifetime. Their health may also have deteriorated, so the last thing they want to do in such times, is to dig deep into their finances to address the thorny issue of death taxes.

Another reason for their apathy, is because they may own one or more properties. Property is the elephant in the room for eliminating IHT through financial planning, because there’s not a lot you can do with bricks and mortar to get it out of the taxable estate within a decent timeframe. People are also reluctant to sell property, firstly because historically they’re more comfortable owning this asset than any other financial instrument. Secondly, they are concerned about the capital gains tax (CGT) bill that might result if they sell any property that they’ve held as an investment. This is understandable, but there is a very tangible solution to this CGT problem, that involves deferring it, and then eliminating it completely with year on year financial planning.

Also, people can be reluctant to seek advice on the subject. Advice is something that they may never have looked for before, and the thought of it might fill them with dread!

However, the cumulative and toxic effect of taking ‘no action’, is the somewhat reluctant route taken for the majority of people. The taxman loves such inaction, and just feeds on it. The worst planning people can do on this subject, is to do nothing. Make no mistake, the act of doing nothing costs 40% of a large chunk of an estate over and above the available tax-free allowances on offer. Just to add insult to injury, the government now reduces one of the tax-free allowances for people with estates valued over £2 million.

Thankfully, there are many solutions to the IHT problem, which we can explain, in layman’s terms whilst avoiding jargon, in a free and without obligation meeting. I always encourage sons and daughters to actively engage in this process, to ensure everyone in the family that might be affected by this matter, is completely comfortable with the advice being given to their parents.

Some planning solutions are unknown to people, but they generally come under 4 guises;

1) Gifting money to others
2) By use of inheritance tax friendly investments (i.e. getting money out of the estate after just 2 years)
3) By insuring the tax bill through life insurance
4) Mixing and matching the 3 solutions above

One of my clients took out an inheritance tax friendly investment, has since survived the 2-year investment holding timeframe, and her estate has now qualified to save over £400,000 in IHT. What struck me with this case, was the potential legacy benefit that she could leave behind with just this tax saving amount alone. Rather than handing the money over to the chancellor, the client would much rather know that this £400,000 tax saving would be used to assist her grandchild to get onto the property ladder, in an era where it is increasingly problematic for first time buyers to afford to purchase their first home.
I’ll close this article with a poignant question that should be asked of anyone learning that they have an IHT bill on their estate.

Which would you rather do, leave tens or hundreds of thousands of pounds to your family, or leave it to the chancellor of the exchequer? It’s quite a simple choice when you think about it.

Kevin Wilks can be contacted on 01442 800810, 07958 518589 or via email at

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