Estate Planning

Estate Planning is an important and everlasting gift you can give your family. Setting up a smooth inheritance isn’t as hard as you might think.
Many people believe that inheritance tax only affects wealthy families, however, rising property prices have meant more of us are paying inheritance tax. Whilst inheritance tax is a tax on your wealth that is paid after your death, there are often ways of reducing the liability.

Financial planning strategies exist that can help to reduce your tax liability and we will be able to help you explore your options.


Everyone has a £325,000 nil-rate inheritance tax band. If you are married or in a civil partnership, you have a combined nil-rate band of £650,000.

40% Inheritance Tax is payable above this threshold, reduced to 36% if you leave at least 10% of your assets to charity.

From April 2017, an additional main residence nil-rate band was introduced when a residence is passed on death to a direct descendant. For the 2019-20 tax year, the allowance is £150,000. This increases to £175,000 by 2020/21, and then gradually increases in line with the Consumer Price Index (CPI). There is a maximum estate value of £2 million. If you are married or in a civil partnership, you have a combined residence nil-rate band of £300,000, increasing to £350,000 by 2020/2021. Anyone who does not have children or has an estate valued at more than £2.3 million and one residence nil rate band available (2019-20) will not be able to benefit from this allowance.

Make personal gifts

Gifts made to relatives or friends during your lifetime which are not “exempt gifts” may be exempt from or eligible for a reduction in inheritance tax, however, you must live for 7 years after making the gift for it to be completely outside of your estate.

These gifts are sometimes known as Potentially Exempt Transfers, or PETs.

Gift Trust

Another method of addressing potential inheritance tax liabilities is to make a gift into Trust. This type of planning can take place during your lifetime or on your death.

If you make an outright gift, such as a PET, you give up ownership and lose control over it which can be daunting. Instead, some people turn to trusts.

Whilst you are still giving away the asset you can, in most cases, maintain control over how the trust asset is managed and who can benefit from the Trust as a Trustee.

It is important to note that you cannot benefit from the Trust personally if it is to be effective for the purpose of inheritance tax mitigation.

Discounted Gift Trust (DGT)

This can be a useful arrangement if you wish to try and obtain an immediate reduction in your potential Inheritance tax liability and receive an income.

The basic structure of a DGT is that you would gift away a lump sum of capital into an appropriate trust, and then receive a fixed regular income stream for your lifetime (if sufficient funds are available).

Dependent on your age, sex, health, and value of the income stream chosen, a portion of the capital gifted into the trust is deemed to be immediately outside your estate for inheritance tax purposes.

Loan Trust

Loan Trusts are effective for mitigating a potential inheritance tax liability, as any growth on the investments held in the trust is outside your estate for Inheritance tax purposes.

The initial gift into the Trust remains in your estate and is repayable on demand, which means full access to the capital is retained.

This type of planning is often favoured by individuals who cannot afford to gift away a capital sum but want to limit any future growth in the value of their estate.

Whole of Life Policy

This type of policy allows you to specify an amount to be paid out as a tax free lump sum, on your death. Your beneficiaries could use this to pay any inheritance tax due to HMRC.

Creative solutions

There are other strategies and exemptions available which can be used to mitigate an inheritance tax liability on your estate. These generally require you to own a specific type of asset and/or have a high risk approach to investments and the capacity to absorb any losses.

If you are unsure whether you need to consider inheritance tax planning or would like to know more about mitigating the effects of this tax on your estate, please contact us and we will be happy to discuss your options in more detail.

Contact one of our estate planning specialists today

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Pentagon Wealth is the trading name of Pentagon Wealth Ltd. Pentagon Wealth Ltd is an Appointed Representative of Julian Harris Financial Consultants, authorised and regulated by the Financial Conduct Authority No. 153566. Pentagon Wealth Ltd – Registered Address: 100 High Street, 5th Floor, The Grange, London, N14 6BN – Registered in England, No. 846206