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Tax & Estate Planning In 3 Simple Steps

27 May 2020

Tax & Estate Planning In 3 Simple Steps

Simple steps

The inheritance tax planning strategy most approved of by HMRC is also very straightforward. Anyone can do it, and most people do. It is to do nothing. The taxman loves it because it guarantees the maximum tax payable on the estate. It’s the strategy adopted by a majority of the population.

Effective Estate Planning

In fact, only 3 simple steps are required for effective tax and estate planning. But while they may be simple, that doesn’t mean they are easy. However the important thing is to take these steps while you are very much alive.

Step 1: Your Wishes

The first step is to write down your family circumstances, your wishes and intentions regarding inheritance. Also write down any concerns you have.

For example your wishes might be:
– ‘My children to inherit equally’, or
– ‘My share of the business to go to my niece, because she is my fellow director’

Your concerns might be:
– ‘Is my youngest grandchild too unsettled to inherit yet? Maybe it’s better if she inherits at 25 rather than 18?’

Step 2: Tax

Second, you need to understand the IHT position on the event of your death. How much tax would be payable? To work this out you will need to know the details of acquisition costs and current market value of your property, investments and savings, including business interests.

Once you know how much tax will be payable (as accurately as possible), you can think about how it will be paid. Where will your executors find the money? Will they have to sell assets? – if so, which?

Step 3: Reducing The Tax Payable

The third and final step is to consider how you can reduce the tax payable. The idea is to arrange things so that more of your estate goes to your beneficiaries, and less of it ends up in the hands of the taxman.

One way of doing this is to give away some assets in your lifetime. But there could be a charge to capital gains tax (CGT) if you do this. So you need to calculate the CGT position if you make a gift of property or other assets today. The aim is to balance any CGT payable now against IHT payable in future. Given that the CGT rate is generally about half of the IHT rate, you may consider that’s worth taking a smaller hit now to avoid a larger hit down the road.

To calculate the CGT you will need precise and accurate valuations and documentation. For instance, for property you should determine the cost of acquisition and any improvements, as well as dates of purchase.

Following these 3 simple steps should help with the aim of reducing the IHT payable on your estate. But take professional advice for a full appreciation of your position.


For more information about tax and estate planning, click here.

You may also be interested in:
“Tips To Avoid Inheritance Tax – Part 1”
“Tips To Avoid Inheritance Tax – Part 2”

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