The only certainties in life: Death and Taxes

The latest thinking and sound financial advice from Family Business Network partner, Seven Investment Management…

“Many of us, understandably, avoid talking about death.

But our desire to avoid awkward conversations around death and inheritance may get in the way of good financial planning. This – and rising property prices – may account for the record amounts of inheritance tax (IHT) the UK government collects each year.

Latest figures show that the total had reached £5 billion (Source: HMRC), with the average IHT bill reaching £180,000. These are surprising figures for what could be described as a ‘voluntary’ tax. (Not because you can refuse to pay, but because good planning may avoid any liability in the first place.)

Another reason why people may pay unnecessary IHT is due to the complex nature of the rules. We explain the basics in this article, but we strongly recommend taking professional advice.

The rules

If you leave everything to your spouse or civil partner, there is no IHT to pay when you die. Estates worth less than £325,000 are also exempt.

Anything over £325,000, is charged at 40%. It’s charged not just on the value of cash and investments, but also property, payouts from life assurance, and possessions such as jewellery, cars or furniture. Pensions, however, are not liable to IHT – so that’s worth remembering when you’re looking at tax-efficient investments.

On top of the main ‘nil-rate allowance’ of £325,000, there’s a residential nil-rate allowance of £125,000 if you leave your main home to a direct descendant (a child or a grandchild).

Transferring your IHT allowances

The real potential for IHT planning lies in the rules around IHT reliefs and transferring allowances between spouses and civil partners.

For example, a spouse or a civil partner can transfer any IHT allowances unused on the first person’s death, and use them at the time of the second person’s death. So, with a bit of careful planning, a couple could leave an estate worth up to £900,000 IHT-free. By 2020 that figure will increase to £1 million.


You can also reduce the value of your estate by making gifts within your lifetime. Not all lifetime gifts are IHT-exempt, but many are, so it’s worth getting advice.

IHT reliefs also exist around businesses, farms and woodlands, among others. But the technical detail here is lengthy. Personalised advice is essential here.

The bigger picture

Ignoring IHT planning completely, your heirs may pay thousands of Pounds in tax unnecessarily. But Inheritance tax mitigation should never be the sole focus of estate planning – there are pitfalls around this, including finding yourself very short of cash in your own lifetime.

To strike a sensible balance between the two, you need an adviser who understands the rules, and can give you expert advice on how to apply them to your own situation.

Give the friendly team at Seven Investment Management a call on 020 3823 8678 to find out how they can help you.