Estate planning should start early in life and is for everyone, not just the very wealthy. It is about ensuring control of your estate and planning ahead so there are no uncertainties about how it is managed in the future.

Minimise the effect of tax
It can also help minimise the effect of tax and ensure that your beneficiaries are looked after, especially young children or any dependants who may be vulnerable and need special care. Inheritance Tax (IHT) is a tax on your estate – the things that belong to you – when you die and is also sometimes payable on trusts or gifts made during your lifetime.

IHT is often called a voluntary tax because, with careful planning, the amount your estate has to pay could be reduced or removed completely. From writing a Will, to understanding the exemptions and making lifetime gifts, there are currently several options to help mitigate IHT.
Your estate includes the total of everything you own and a share of anything you own jointly. Things that might count towards your estate include:

Property

Investments

Insurance (not written in an appropriate trust)

Payment from a pension plan or employee death benefit (unless in a trust)

Other assets, for example, cars, art, jewellery, furniture
Gifts you have made but still benefit from, for example, a house you have given away but still live in

Certain gifts that you have made in the last seven years

Assets held in trust from which you receive personal benefit

If you own assets jointly, your share of their value is included in your estate

IHT matters
For the 2011/12 tax year, no IHT is charged on the value of your estate up to £325,000. This is known as the ‘nil rate band’ and everything above that is taxed at 40 per cent.

If your IHT nil rate band is not used up on your death, the unused proportion can be transferred to your surviving spouse or registered civil partner.

Assets passed to your spouse or registered civil partner are exempt from IHT (assuming your spouse or partner is domiciled in the UK), regardless of your worth and how soon you die after making them. These rules also apply to gifts made to charities.

Additionally, any amount of money you give away outright will not be counted for IHT if you survive for seven years after making the gift. If you die within this period, the amount of the gift will be included within your estate. Taper relief may also apply in these circumstances and could reduce the amount of IHT due.

Bear in mind tax laws are subject to change, possibly retrospectively. Also, the rules for individuals who are not UK resident or not UK domiciled are different and therefore tax and local laws should be considered.

Planning for IHT
There are a number of things you could do to reduce your family’s potential IHT bill:

Make a Will – an effective Will could help to reduce your IHT bill

Look into exemptions – there are a number of exemptions you could use to reduce the value of your estate. For example, moving assets between spouses or registered civil partners does not create an IHT liability

Consider gifts – if you can afford to give away some of the assets that you own, it may be possible to reduce the size of your estate

Think about life assurance – a life assurance plan won’t actually lessen the IHT bill, but the proceeds could be used to help pay the bill on death if written in an appropriate trust

Consider trusts – if structured carefully, trusts can help to reduce or even eliminate your IHT liability ν

Tax laws are subject to change, possibly retrospectively. The rules for individuals who are not UK resident or not UK domiciled are different and therefore tax and local laws should be considered by a potential investor.