Tax-efficient Estate Planning


Craig Hendry

Craig Hendry

Managing Director & Chartered Financial Planner

16 February 2016


Your financial planning strategy should include a tax-efficient estate plan. If your estate is large it could be subject to inheritance tax (IHT). However, even if it is small, planning and a well-drafted Will can help to ensure that your assets will go to your chosen beneficiaries. IHT is currently payable where a person’s net taxable estate is in excess of £325,000.

Your Will, your way

If you own such possessions as a home, car, investments, business interests, retirement savings, collectables, personal belongings, etc, then you need a Will. A Will allows you to specify who will distribute your property after your death, and the people who will benefit. However, many individuals either do not appreciate its importance, or do not see it as a priority.

If you have no Will, your property could be distributed according to the intestacy laws.  Formulating an estate plan that minimises your tax liability is essential. The more you have, the less you should leave to chance. We can work with you to ensure that more of your wealth passes to the people you love, through planned lifetime gifts and a tax‑efficient Will.

Drafting your Will

When drafting your Will you should consider who you want to benefit from your wealth, how these beneficiaries should be provided for in terms of how to pass on business assets for example; or the implications of multiple ownership, and when your beneficiaries should have access to their inheritance taking into consideration their ages and maturity.

Some important IHT exemptions

You should ensure that you make the best use of the available IHT exemptions, which include the £3,000 annual gift allowance; normal expenditure gifts out of after-tax income; gifts in consideration of marriage (up to specified limits); gifts of up to £250 per person per annum to any number of persons; gifts between spouses facilitating equalisation of estates (special rules apply if one spouse is non-domiciled); gifts to charities

Spouses and civil partners

On the first death, it is often the case that the bulk of the deceased spouse's (or partner's) assets pass to the survivor. The percentage of the nil-rate band not used on the first death is added to the nil-rate band for the second death.

Reducing the liability through gifting

Business assets

Under current rules, there will be no CGT and perhaps little or no IHT to pay if you retain business property until your death. This is fine, as long as you wish to continue to hold your business interests until death, and recognise that the rules may change.

Alternatively, you may wish to hand your business over to the next generation. A gift of business property today will probably qualify for up to 100% IHT relief, and any capital gain can more than likely be held over to the new owner, so there will be no current CGT liability.

If business or agricultural property is included in the estate, it may be appropriate to leave it to someone other than your spouse; otherwise the special reliefs will be lost.

Other assets

Gifts do not have to be in cash. You could save more IHT and/ or CGT by gifting assets with the potential for growth in value. Gift while the asset has a lower value, and the appreciation then accrues outside your estate. Also regular gifts out of income (eg an insurance policy premium) will be exempt from IHT.

Generation skipping

Your children may be grown up and financially secure. If your assets pass to them, you will be adding to their estate, and to the IHT which will be charged on their deaths. Instead, it might be worth considering leaving something to your grandchildren.

Keeping your estate plan up to date

Estate plans can quickly become out of date. Most major life events (examples listed below) could affect the plans you have made and therefore we encourage you to review your Will and estate planning to ensure you are maximising the opportunities available.

  • The birth of a child or grandchild
  • The death of your spouse, another beneficiary, your executor or your children’s guardian
  • Marriages or divorces in the family
  • A substantial increase or decrease in the value of your estate
  • The formation, purchase or sale of a business
  • Retirement
  • Changes in tax law.