HMRC’s income from Inheritance Tax (IHT) in 2021-22 was £6.1bn, up around 15% on the previous year.

While IHT doesn’t generate a lot of income for the Treasury relative to income tax, national insurance and VAT (a combined £460bn), it can nonetheless be a painful tax for those families who have to pay it as a result of lack of planning by those they inherited from.

In my 25 years’ experience of dealing with clients, there are many reasons why people don’t plan for passing their money on effectively. These include:

• They plan to get round to taking action but never get round to doing so.
• They feel like it’s too complex and don’t know where to start.
• They're worried about how much it would cost to put in place.
• They're worried that they might run out of money themselves, particularly with rising costs of long-term care.
• They don’t want to give up access to the money.
• They worry about rising prices, having lived through harder times themselves in the past.
• Both partners can’t agree the best way to proceed and end up doing nothing.

Inertia is not a great reason to pay too much tax! Plus, planning early can give you more options and more chance of success. So even if you’re not ready to fully commit or put a final plan in place, there’s definitely one thing you could do now... and that’s start a conversation about it.

Speak to your spouse or partner. Speak to your children and/or wider family. Speak to the intended beneficiaries of your estate. Tell them what your thoughts are, and gauge their thoughts on the matter. By doing so, you’ll start to build a better picture of what your future plans might look like, but without actually taking any definitive action - so there’s still plenty of scope to change your mind or alter your plans, but you might be able to start narrowing down some of your options.

As we’ve covered in some of our other recent blog posts in this series, there are a number of possible solutions to inheritance tax including outright gifting, use of trusts, investing in things that qualify for relief from inheritance tax, using pensions, and using an insurance policy.

Your final plan might involve several of these solutions, and you might decide to implement them at various different times during your lifetime; again giving you the flexibility to adapt to any changes in circumstances, legislation or tax rules. Putting a long-term plan in place step by step means that you’ll be making progress towards your final goal, rather than taking no action because you’re struggling to reach a decision or agree on the full and final answer.

By speaking with a financial planner, possibly in conjunction with a solicitor, it is usually possible to find a solution that addresses many of the above concerns whilst helping to mitigate IHT.

Former Labour Chancellor, Roy Jenkins, famously described inheritance tax as ‘a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue’.

Whilst I would hope that there aren’t too many people for whom this statement actually holds true, I am sure that if you have a potential IHT liability and have not taken expert advice, you, and your family, would almost certainly benefit by doing so.

Contact us

If you’re interested in starting your own conversation and would benefit from some guidance on how to begin, please get in touch with myself or a member of our Wealth team.

Disclaimer: Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority. 

This communication should not be read or considered as financial advice. While all possible care is taken in the preparation of this communication, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the information contained herein can be accepted by this firm.

This communication is based on our understanding of tax legislation as at 14/09/22. The value or benefit of any specific tax reliefs or allowances will depend upon your own situation.  The financial conduct authority does not regulate tax and estate planning.