Tax is voluntary

To paraphrase the famous quotation; only two things in life are inevitable – death and taxes.

And, of these inevitabilities, death isn’t a voluntary option but paying many taxes is. Income Tax and VAT are hard to avoid as we all want to earn and spend but one tax that can have a significant impact but can be avoided with some degree of pre-planning is Inheritance Tax.

The main time we will come across Inheritance Tax is when dealing with the Estate of a recently deceased loved one. HMRC will not allow the Estate to be dealt with until they have their share of it and that can run into many tens, or even hundreds, of thousands of pounds.

In simple terms, if your assets exceed £325,000 on death, HMRC want 40% of the excess. This limit has been fixed for a number of years and, inevitably, more and more people who would have considered Inheritance Tax something that only rich people need to worry about have been swept up in the net.

Political pressure has seen the introduction of the transferable allowance (any unused amount passes to your spouse to be used on their death) and the Principal Private Residence exemption which have reduced the burden to some extent but Inheritance Tax should not be considered as only applying to the super wealthy. It could well apply to you!

Against this background, many schemes have surfaced that claim to solve the Inheritance Tax problem that many people will face as property owners, particularly where most of someone’s assets are their home.

The most obvious one here is transferring your property into the names of your children but living in it until death. Unless you pay a commercial rent between the date of transfer and your death, HMRC will consider this a Gift with Reservation, and disqualify the transaction meaning it will be assessable against Inheritance Tax. The only result will be not only the tax you would have paid but also the fees involved in setting up the deal, leaving you as the only loser.

Having said the above, not all assets fall within Inheritance Tax. The value of family businesses can usually be excluded, albeit conditions do apply here.

Also, gifts that have been made to people – related or not (again, conditions apply as to how much, who and when) – will fall outside the Estate if they were made more than 7 years before death.

In short, Inheritance Tax is fiendishly complicated but that doesn’t mean it should be ignored. HMRC received £5.4 billion in 2018/19 from Inheritance Tax and, given that the Government will inevitably have to find some way of paying for all the Coronavirus support schemes, there is no reason to assume that it is going away anytime soon.

For a comprehensive assessment of your situation and advice on how to mitigate your potential Inheritance Tax bill, speak to your consultant or call us on 0333 241 3350.

Peter Murphy Dip PFS


This information is provided strictly for general consideration only. No action must be taken or refrained from based on its contents alone. Accordingly, no responsibility can be assumed for any loss occasioned in connection with the content hereof and any such action or inaction. Professional advice is necessary for every case. Based upon our understanding of UK tax law at June 2020. The value of investments can fall as well as rise and you may not get back the full value of your investment

Richmond House Corporate Services Limited is registered in England (No 10287755). Registered Address: Premier House, Argyle Way, Stevenage, Hertfordshire, SG1 2AD. Richmond House Corporate Services Limited is authorised and regulated by the Financial Conduct Authority (FCA Reg No 772075).