A stopwatch starts ticking on the day after you die.  It stops just over 6 months later.  That is the day your family must pay the inheritance tax due on your estate.  If your family needs to obtain probate, and they will where your assets include shares or property, tax may well be due at the time of the probate application itself.  The crucial issue for the family is therefore how to pay the tax ?

If you are single and own more than £325,000 including your home, any investment property or a business then there may be tax to pay. If you and your spouse own more than £650,000 may be tax to pay. Anything above these thresholds will be taxed at 40% where the excess is not covered by relief’s and exemptions.

The tax on property and certain shares can be paid by instalments over several years but most people feel that is a just a bit too much like taking out another mortgage in practical terms.  Where the value of your estate is concentrated in property or shares in your own company the result can be hasty sales or liquidations to obtain the necessary funds.

It is not just that the estate passing to the family is significantly less than everyone may have thought as a consequence of the tax. It is the very practical issue of selling the family jewels or taking out loans to pay for the tax.

The good news is that shares in your own trading company can secure 100% relief from inheritance tax on your death.  There are comparable reliefs for partnerships and other family businesses. Investment companies are different even if the investments amount to a business.

The bad news is that H M Revenue & Customs will, given that the relief is so valuable,  go through your last 3 years accounts with a fine tooth comb to disqualify you from the relief where there is any chance of them doing so …. and in many cases they will succeed simply because it has been left to chance.

Common failings are excessive cash or investments on the balance sheet, diversification from the core business over the years and inappropriate group structures which can dramatically reduce or even wipe out this valuable relief and expose the family to tax of close to 40%.  If you or your family don’t really know the position by the time HM Revenue & Customs are reviewing your accounts then your legacy has been left to chance.

Unfortunately, there are no specific reliefs for property or property companies and so one either accepts the inevitable tax charge of up to 40% or one looks to make a start with some estate planning.  Time is your ally if you take the medium to long term view and take the initiative.  It is your adversary if you leave it until the last minute.

The key is often to restructure the way that property is held and/or to gradually transfer some of your interest in it in such a way that the value transferred suffers neither capital gains tax nor inheritance tax at the time you do it.  Giving it all away is not usually a very practical or comfortable strategy, whatever the tax savings may be. But you don’t have to do that to make significant savings.

In other words, you need to aim to make the whole thing painless and yet retain decisive control over your property if that is your wish while taking steps to reduce the longer term tax exposure of the family.   All that is achievable.


A few straightforward steps will set you in the right direction !

STEP 1: Work out your potential exposure to inheritance tax today.

STEP 2: Plan for the next 10 years to protect your family from that exposure.

STEP 3: Where you potentially qualify for any reliefs and exemptions, make absolutely certain that you have met in the past, and will meet in the future, the necessary stringent conditions.

STEP 4: During those 10 years do everything possible to attract legitimate tax reliefs and exemptions through sensible and robust planning.

STEP 5: Think through a practical succession strategy for the family while staying in control and use your greatest strength, your family, to preserve the very wealth it benefits from, for future generations.

Where you are going wrong with inheritance tax planning –