‘Simple and straightforward’ – how to cut thousands on your Inheritance Tax bills

Inheritance tax: Financial advisor provides advice

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On the UK Personal Finance Show podcast, financial expert Phil Anderson explained what steps he has taken towards retirement to make leaving money to his loved one’s tax efficient and easy. He said: “One bit of planning I’ve done myself is I’ve got various life insurance policies held in trusts.

“The benefit of that is one it goes to who I want it to go to.

“Two – it doesn’t form part of my estate for inheritance tax purposes if I was to die.

“Third, it plays out a lot quicker if I was to die as well, they wouldn’t need to wait for my will to get sorted out.

“That’s three good reasons to use trusts and look at that.

“That’s something that a financial planner can help people with as well but it’s all stuff that I’ve done myself.”

HM Revenue & Customs took a record £6billion in IHT last year, up more than £1billion in just 12 months.

Inheritance Tax bills are treated differently if assets are held in certain types of trusts and while not all trusts shield families from the tax, there are some instances in which IHT will be reduced.

If people put things into a trust, provided certain conditions are met, those things no longer belong to them.

This means that when people die their value normally won’t be counted when the Inheritance Tax bill is worked out.

Instead, the cash, investments or property belong to the trust.

In other words, when the property is held in trust, it’s outside anyone’s estate for Inheritance Tax purposes.

Another potential advantage is that a trust is a way of keeping control and asset protection for the beneficiary.

A trust avoids handing over valuable property, cash or investment while the beneficiaries are relatively young or vulnerable.

The trustees have a legal duty to look after and manage the trust assets for the person who will benefit from the trust in the end.

When people set up a trust, they decide the rules about how it’s managed.

For example, they could say that their children will only get access to their trust when they turn 25.

HMRC released data recently which showed £3.1billion was paid by families through Inheritance Tax (IHT).

This was between April and September. This was an increase of £700million on the same period in 2020.

Britons may want to consider talking with a financial planner.

This is so they can avoid paying thousands in Inheritance tax once they die.

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