Chancellor Rachel Reeves agreed to extend the IHT threshold freeze for another two years to 2030 – meaning more people will now likely pay IHT in the future.
Reeves confirmed she will bring most pensions into the IHT regime from April 2027.
Here are three tax breaks which could save your family tens of thousands of pounds:
Leave To Your Spouse
Couples made use of this exemption by transferring over £15.5bn of assets tax-free to their spouse or civil partner on death in 2021/22.
It’s why many couples set up their finances with mirror wills – so they automatically leave everything to their spouse when the first of them passes away.
This has the added advantage that if you leave everything to your spouse, you can also transfer your nil rate bands.
It means that a married couple who plan to give their property to children or grandchildren can end up with an allowance worth up to £1m on the second death.
Be careful though that the inclusion of pensions within your estate doesn’t push the overall value above £2m as this could reduce your available residence nil rate bands.
Extra ISA Allowance
If you leave ISAs to your spouse or civil partner, this will fall within the IHT exemption, so you don’t need to worry about inheritance tax.
But there’s an extra tax break on top too.
When someone passes away, if the contents of their ISAs are being passed to their spouse, they can normally claim an additional ISA allowance – known as an additional permitted subscription (APS).
The APS is equal to the higher of the value of the ISA at the date of death and the value at the point the ISA ceases to be a ‘continuing account’ (this will generally be whichever comes first between the completion of the administration of the estate and the closure of the ISA).
It means they might be able to wrap everything back up in an ISA without using up their annual allowance.
Life Insurance In Trust
You can help protect your loved ones from having to foot an IHT bill by having life insurance to cover the cost.
By writing the policy in trust, it can fall outside your estate, meaning there’s usually no inheritance tax to pay on it.
You should make sure it covers your whole estate though, including any potentially exempt transfers.
If you give larger gifts, and you don’t live for at least another seven years, they can be brought back into your estate for IHT purposes.
It means it’s worth considering a life insurance policy to cover your entire potential tax liability, including these gifts. These policies come at a cost, so not everyone will be able to stretch to the premiums, but it’s at least worth looking into them.
If you would like to give yourself the best chance of passing on a legacy that suits your family’s circumstances, arrange a Discovery Call with one of our FCA authorised wealth managers [Here]
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