Inheritance tax: Act today to protect your wealth of tomorrow

A s the UK’s financial environment evolves undernew Westminster leadership, refreshing your personal economic outlook has never been more important.

With headline reforms, including changes to inheritance tax, comes the need for greater understanding and an awareness of the steps you can take to mitigate their impact.

Helping provide such is Chartered financial advisory firm Perspective (North East).

Thanks to the tailored guidance of its expert teams, it stands ready to help you map out a financial future that protects your wealth today while securing your family’s tomorrow.

Here, managing director Ian Wilkinson highlights some of the steps you can take around inheritance tax.

Use the nil-rate band and residence nil-rate band

The nil-rate band allows the first £325,000 of your estate to be passed on tax-free.

If your estate exceeds this threshold, inheritance tax is charged at 40 per cent.

The residence nil-rate band, currently £175,000, applies if you pass your main home to direct descendants.

Married couples and civil partners can combine their allowances, potentially shielding up to £1 million from inheritance tax.

Make use of tax-free gifts

Gifting money during your lifetime is a great way to reduce your taxable estate.

Regular gifts out of income, such as funding a grandchild’s education, can also qualify if they do not affect your standard of living.

Unused allowances can be carried forward for one year.

However, it is crucial you keep accurate records of the gifts you make so you, or your heirs, can evidence them if required in the future.

Consider the seven-year rule

If you gift assets and survive for seven years, the gift falls outside your estate for inheritance tax purposes.

If you pass away within this period, the gift may be taxed on a sliding scale known as ‘taper relief’, reducing the tax burden depending on how many years you live after making the gift.

Place assets in trusts

Setting up a trust can help manage your estate efficiently and reduce inheritance tax liability.

Trusts allow you to pass on assets without them forming part of your estate for tax purposes.

Potential options include:

Bare trusts – Here, assets belong to beneficiaries but are managed by trustees

Discretionary trusts – In this scenario, trustees control distributions, which can be useful for complex family arrangements

Interest in possession trusts – Here, beneficiaries receive income while assets remain protected

Leave money to charity

Donations to registered charities are exempt from inheritance tax.

Additionally, if you leave at least ten per cent of your estate to charity, your inheritance tax rate on the remaining taxable estate reduces from 40 per cent to 36 per cent.

“With headline reforms, including changes to inheritance tax, comes the need for greater understanding and an awareness of the steps you can take to mitigate their impact”

Take out life insurance

Life insurance is an often overlooked option.

But a life insurance policy placed in trust can help cover inheritance tax liabilities without increasing the taxable estate.

These policies are designed to ensure your heirs have the liquidity to pay taxes when they fall without selling key assets, giving them the full benefit of your estate.

Placing life insurance policies in trust is essential, for it ensures the payout is not included in the taxable estate, allowing funds to go directly to beneficiaries without additional tax liabilities.

Trust arrangements also simplify access to funds, ensuring timely payouts to cover inheritance tax.

Invest in inheritance tax-exempt assets

Certain investments qualify for business relief, allowing them to be passed on free of inheritance tax if held for at least two years.

These include shares in qualifying businesses and some AIM-listed stocks.

Your next steps

Minimising inheritance tax requires careful planning.

By taking proactive steps now, you can ensure more of your wealth stays with your family and beneficiaries.

Combining these strategies can have a material impact on a potential inheritance tax liability.

And we are here to help.

Our expert teams across our national office portfolio – which includes bases in Newcastle, Darlington, Stockton, Hexham and Harrogate, North Yorkshire – will support you every step of the way, providing advice and guidance tailored to your personal circumstances.

Perspective Financial Group

Operating from more than 50 bases across the UK, which include Perspective (North East) sites in Newcastle, Darlington, Stockton, Hexham and Harrogate,North Yorkshire, Perspective Financial Group’s local offices provide financial planning advice with client relationships that endure, on average, for more than 26 years and often span four generations of a family.

To find out more about its services, how it could support your needs in the post-Budget landscape and for office contact information, visit: www.pfgl.co.uk
@perspectivefgl