This is a tax on any part of your estate which exceeds your personal allowance which is also known as the nil rate band – ie – your personal allowance which is free from Inheritance Tax. This is currently £325,000 and is a combination of property, savings, investments, other assets and also gifts which you give away in the seven years which lead up to your death.

It’ll be one of two rates – it is usually 40 per cent but if you decide to give at least 10 per cent of your estate to charity when you die, the Inheritance Tax rate is reduced to 36 per cent.

Your independent financial adviser will guide you through your estate planning so you can pass on your assets to your children for example in the most tax efficient way possible. Working with your adviser, first stage of estate planning is to conduct some fact-finding in order to understand all the assets owned, whether that be cash, property, investment or trust funds. You’ll have established now why Inheritance Tax is a big element of any estate planning as your adviser will work to minimise this as and where possible.

The residence nil band rate is an allowance for the passing on of a family home. The rate is £175,000 and can be transferred between spouses or civil partners.  This rate only applies to your own home and not a buy-to-let property. For people with much larger estates, the rate is reduced by £1 for every £2 that the estate is valued at over £2million.

• Small gifts

  are deemed to be less than £250 in value. If you gift your son, or niece, or nephew a number of gifts amounting to £250 or less, that’s fine to do so but you can’t do this for someone who has already benefited from your annual exemption. You can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate. This is known as your ‘annual exemption’.

• Gifts from income may also be tax free. Think about it this way – you can give someone money from your salary or your pension and it won’t be counted as Inheritance Tax. HMRC say these gifts need to form a regular spending pattern. If you have an ex-husband, ex-wife, ex-civil partner or relative who is dependent on your for maintenance, these gifts would be considered tax free. Also exempt from Inheritance Tax are gifts for the maintenance, education or training for children under the age of 18.

• Wedding gifts are also exempt from Inheritance Tax if the gift is made prior to the wedding taking place and only if the wedding does go ahead. Check with your independent financial adviser as to how much you can gift a couple getting married.
• Donations to charities and political parties are also exempt from Inheritance Tax. To give you an example, you would not have to pay Inheritance Tax of gifts to national museums, amateur sports clubs, UK charities, The National Trust, political parties. Again, speak with your adviser on this matter because if you do decide to make a gift in your will, to a charity or political party, you may qualify for a reduced Inheritance Tax rate.

Potentially Exempt Transfers, or PET, as they are known, are gifts which you make to other people during your lifetime unless they fall into the list of tax-free gifts. Generally speaking they are applied to your £325,000 tax-free allowance before the rest of your estate. If you make the gift, and are still alive seven years after making that gift, no Inheritance Tax is due. However, if you die within seven years of the gift being made then the gift is considered part of your estate for inheritance tax purposes.

You’ll have seen us mentioning the seven year rule – basically that’s Taper Relief. If you made a potentially exempt gift which was bigger than the nil rate band, you could benefit from this relief which gradually reduces the amount of chargeable Inheritance Tax over the seven years after you made the gift.

In each tax year that you are alive you can give up to £3,000 in total.

Ask your adviser for more detail on this as some people do hold back because they are worried about running out of money later in life. Your adviser will show you how much money you need to maintain your chosen lifestyle and they will also take into account your expenses such as the cost of long term care.

Yes. Pensions are not included when your Inheritance Tax bill is calculated. If you are in a financially healthy position, and do not need to access your pension, then yes, you can pass your pension on tax free while you reduce the size of your taxable estate.

A trust can help you keep control of what happens to your assets when you die. Your adviser will help you with this of course. The rules around Inheritance Tax and trusts are complicated and could end up costing you more if it’s not handled properly.