Death Tax

Death and Taxes: Insurance Tax Explained  



Posted on: 15th February 2024

We have all heard the adage that there are two things certain in life, but – for many of us – the tax we pay after we pass is not something we necessarily care about. After all – you can’t take it with you, right?

The truth is that you can’t, but pretty much everyone would prefer their family to benefit over a tax man regarding their wealth. Inheritance tax (IHT) can be pretty costly for your loved ones, so planning for it with your independent financial advisers Cheshire will greatly benefit in leaving a legacy.

Why You Should Care

You may have heard people talk about the ‘Death Tax’ – well, that is another name for the Inheritance Tax that comes across more bluntly. When you pass, it is a tax payable on your estate imposed by HMRC.

Everything you own when you die is collectively known as your ‘estate’. It includes money, property, and your possessions. Based on the size of your estate, inheritance tax may need to be deducted, meaning the intended beneficiaries would receive less than you intend or they should expect.

UK residents have a Nil Rate Band of £325,000, with no inheritance tax payable providing your estate does not exceed that amount. It is important to note that IHT would not be payable when passing your assets on to a spouse or partner. Any unused Nil Rate Band can also be passed on to them, meaning they would have a Nil Rate Band of £650,000 available on their death.

Can You Reduce Inheritance Tax?

To reduce your inheritance tax, you could give away some of your estate with gifting while you are still alive. It is a common practice to reduce your estate as you get older and limit the amount of IHT your family will be left with.

Gifts made seven years before your death may still be included within your estate and liable for IHT, so care must be taken. In addition, once you have gifted, you relinquish any ownership of that asset and consequently lose control of it. For this reason, many look for alternative methods of removing assets from their estate whilst maintaining some control over it.

Alternative Solution

A Discounted Gift Trust (DGT) is an investment bond arrangement allowing you to undertake IHT planning without losing full access. A gift is made to a trust for the ultimate benefit of the beneficiaries, with the settlor having the right to regular withdrawals.

Business Property Relief (BPR) allows certain investments to be passed on free of IHT on the death of the investor, providing the shares have been held for two years. The seven-year clock is therefore reduced to five years and the individual loses no control of the investment.

Another trust-based investment bond arrangement is a Flexible Revisionary Trust, allowing the settlor to gift money into a trust by starting the seven-year clock on the gift, with the settlor retaining access to flexible periodic payments.

Interested to know more about the Death Tax? Contact the team at Haven IFA for independent financial advisors Manchester and discover what the future can hold for your loved ones.