Language of inheritance tax

Would more IHT planning be done if we didn’t talk about IHT planning? Les Cameron, Head of Technical at Prudential explores.

Rising IHT receipts

It’s well documented that Inheritance tax (IHT) receipts are on the rise and are projected to continue to do so.

Rising asset values and the frozen nil rate band are ‘to blame’. Rising property prices are often quoted, and whilst a factor there’s a bit more to it than that.

When you dig into the IHT statistics a bit deeper you will find a story of cash, securities and life policies being a not insignificant percentage of the taxable estate. Given these are readily realisable and / or transferrable to others there must be an element of lack of planning.

The thought of IHT tax planning, chargeable lifetime transfers and Potential Exempt Transfers (PETs), exemptions and lifetime gifts may be daunting but also it’s not very interesting is it?

What language might bring it to life?

The case of one widow and her children

Let’s look at Jane, an elderly widow with a nest egg of £100,000, which will be subject to IHT, gathering dust in the bank. Her two children, Jack and Jill will be the beneficiaries.

Let’s assume she’s finally had the good sense to give up the miserable return she is receiving in the bank and kicked up the risk spectrum a little and is expecting a 4% net return.

Given IHT is 40%, anyone with more than one beneficiary will see HMRC being the biggest beneficiary. In this case it’s 30% each to Jack and Jill.

inheritance tax graph

With no IHT planning, is Jane happy that the largest recipient of her nest egg is HMRC?

Possibly not.

So something has to be done about making Jack and Jill the biggest beneficiaries of her nest egg.

Simple, Jane needs to give money away.

inheritance tax graph

Once Jack and Jill have the money, after 5 years HMRC will cease to be the main beneficiary and all Jane needs to do is survive 7 years and HMRC will cease to be a beneficiary!

But Jane’s words might be “I can’t give my nest egg away, I worked hard for that and I might need it. And I don’t particularly like Jack and Jill’s spouses either”.

So, all we need is an ability to reduce IHT, have access to your money and keep control over how it gets spent?

Are you happy giving away your growth?

inheritance tax graph
A good solution?

Using a loan trust allows Jane to overcome that psychological hump of giving her nest egg away. She gets to keep her nest egg. After 5 years HMRC will cease to be the main beneficiary. And as time passes and her nest egg grows, HMRC’s share becomes smaller and smaller.

Perhaps we shouldn’t talk about IHT and trust planning. Should we talk about what you’re willing to give up to help your family and who you want to get most of your money – Jack or Jill or “spreadsheet Phil”?

For further information about IHT and intergenerational planning take a look at Prudential’s Life Events hub on PruAdviser.



Gregg McClymont: The pension dashboard’s fatal flaw

Is industry right to think dashboard will boost engagement when inertia has proved such a dominant behaviour? The pensions dashboard concept has captured the imagination of the government and industry, and the attraction is obvious. Digitalise all existing records so individuals can see their aggregated pension entitlements in once place at the click of a […]

Offshore amnesty could bring in 5bn

The Government’s amnesty for UK taxpayers with undisclosed offshore bank accounts could net the Treasury up to 5bn.

Behind the numbers: Passive ESG: Growing and evolving

A rise of sustainable passive funds sparks new trend among trackers Sustainable investing has historically been associated with active management. But passive strategies can also incorporate environmental, social and governance criteria, and the growing flows into passive ESG investments are evidence that an increasing number of investors believe in the merits of a passive approach […]


Lifetime allowance 2018/19 increase confirmed but pensions absent

The Government has confirmed that the lifetime allowance 2018/19 will rise in line with inflation, but savers have been offered little else in the Autumn Budget. The lifetime allowance will increase from £1m to £1,030,000 to match CPI from 2018/19.  Though the maximum amount the can be saved each year into a Junior Isa or […]

The What of Trusts: Gift Trusts(part 1)

Helen O’Hagan, Technical Manager at Prudential looks at the concept of trusts, starting with Gift trusts and why they can be confusing and complex for many advisers. W – why use a gift trust?H – how to set up a gift trustA – access for the settlor and beneficiariesT – taxation of the trust WHY […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm