Our latest Pay Less Tax newsletter is now available – a special edition focusing on inheritance tax (IHT) and the planning points that could help you pass on more of your estate to your family.
This edition focuses on leaving 10% of your estate to charity, the pension changes coming in April 2027, regular gifts out of income, and using trusts as part of your IHT planning.
An altruistic IHT solution
Frozen allowances, rising property values, new limits on business and agricultural property relief, and pensions coming into scope mean more estates are being caught by inheritance tax. One option is to leave at least 10% of your estate to charity, which can reduce the IHT rate on the rest of your taxable estate from 40% to 36%. If someone has died within the past two years and their charitable gifts fall short of 10%, a deed of variation may help bring them over the threshold.
The pension hit
From April 2027, most pension pots – those held in money purchase arrangements – will be brought into the inheritance tax net, and it’s estimated a further 10% to 20% of estates could be affected. Death-in-service benefits and final salary schemes won’t be caught, but the impact elsewhere can be significant: in one of the newsletter’s examples, a couple’s IHT bill rises from £400,000 to £820,000. We can review your current IHT position and compare it with how things will look after April 2027.
Gifts out of income
One-off gifts normally only fall outside your estate if you survive seven years, but regular, habitual gifts made from surplus income – without affecting your usual standard of living – can be exempt from inheritance tax straight away. The relief depends on good evidence, so it’s worth documenting your plans, giving cash rather than other assets, and keeping records that match what your executor will need for HMRC’s IHT403 form.
Trusts – inheritance tax
Trusts can help safeguard family assets, keep control over who benefits and when, and reduce inheritance tax, as any growth in value after assets are settled falls outside your estate, and the original value also falls outside if you survive seven years. However, putting assets into certain trusts can trigger an immediate 20% IHT charge on value above £325,000 (business assets are treated more generously), and there can be charges of up to 6% every ten years. Whether a trust is right for you depends on your circumstances, and we’d be happy to talk it through.