Couple cut £100,000 inheritance tax bill to zero – how YOU could save a fortune too

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Inheritance tax labelled ‘unfair’ and ‘cruel’ by expert

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Britons hate inheritance tax (IHT) with a vengeance but that didn’t stop Chancellor Rishi Sunak from freezing the nil-rate bands until 2026, which will drag more Britons into the net every year. Yet if you plan carefully, you can limit the damage to your family’s fortune.

HM Revenue & Customs took a record £6billion in IHT last year, up more than £1billion in just 12 months.

Many fear Sunak will target IHT again in his Autumn Budget and Spending Review on October 27, and tax experts are warning people to reduce their exposure if they fear getting caught out.

Assets held in trust, such as property or shares, do not form part of your estate for IHT purposes, provided you live for seven years after placing them into trust.

Brighton couple Vic and Carole set up a trust to protect their family’s wealth from the tax man, and reckon it is the best thing they have done.

The couple, who have been married more than 60 years, put a £120,000 lump sum into an inheritance tax trust in 2006.

They used the WAY trust, which is a flexible family wealth protection scheme. Their investment has now more than doubled to £246,000, and NONE of it will be subject to IHT when they die.

Vic, 82, a retired food sales manager, was so pleased that in May 2013 he decided to invest a further £102,000 through a second WAY trust. This has also performed well, surging to £170,000 today.

All of this money has now fallen out of their estate for inheritance tax purposes.

Vic reckons this is one of his best financial decisions he has made. “We have moved a total of £222,000 into these two trusts and now have £416,000 available for our family, completely free of IHT.”

The couple have two children and five grown-up grandchildren, and Vic is delighted to have protected them from what he calls the “government’s IHT grab”.

WAY chairman Paul Wilcox said more families can benefit from trust planning, just like Vic and Carole.

He said there are three reasons why “the spectre of IHT” is spooking more and more UK families.

“First, the nil-rate band of £325,000, which is the amount you can pass on free before IHT is charged at 40 per cent, has not risen since 2009.”

Second, estate values have risen due to high stock market returns and spiralling property values. “Last but not least, most UK wealth is owned by the over 60s, who have sadly suffered more deaths than usual due to Covid. I expect this triple tax whammy to continue into 2022,” Wilcox said.

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A number of specialist advisors offer IHT planning services and you can choose from a range of different trusts, with bare trusts the simplest, and discretionary gift trusts highly popular.

Consumer champion Which? said whether a trust is right the right course of action depends on your personal circumstances.

With some trusts, you may pay an upfront 20 percent tax charge when setting it up, if the money you pay in exceeds the IHT nil-rate band. The trustees will charge a fee to manage the trust, and there are other legal costs, too.

Do not be dazzled by the potential savings. First, check all of the fees to weigh up if the benefits outweigh the effort and expense.

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