How to Avoid Inheritance Tax

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The horror stories are all too real for some - stories about families who suddenly find themselves forced out of a home they’ve lived in for decades to pay large sums of tax money to the government, while still grieving the death of a beloved parent.

Paying inheritance tax on an estate that belongs to a deceased loved one can be financially and emotionally devastating, but how does it work and is there anything you can do to mitigate it?

What is inheritance tax and what's the threshold?

Inheritance tax (often simply called IHT) is a 40% charge (set by HMRC) on any estate in the UK which is valued over £325,000 – a figure referred to as the IHT Nil Rate Band.

In its simplest form, when inheriting an estate, the heirs must pay 40% of the value for everything above that nil rate band inheritance tax threshold. If the money is tied up in property or other assets, then those assets must be sold if necessary, to cover the bill.

There is no legal way to avoid paying the UK inheritance tax bill, but with some sensible inheritance tax planning, it is possible to save the estate and ensure that the impact is lowered.

Method #1 – Using available funds

If the heirs have access to their own personal funds, or have inherited accounts from the deceased that are sufficient to pay for the owed inheritance tax, then they can simply use that money to prevent the sale of any property or other physical assets and clear the debt with HMRC.

Method #2 – Life insurance in trust

First, it is important to make it clear that any life insurance payout that is not placed in trust will be considered part of the estate and any heirs will have to pay inheritance tax on that life insurance.

In order to avoid this cut being taken, it is imperative to put the assets into trust.

When life insurance is paid into a trust, it doesn’t form part of the estate but it belongs to the trustee directly. This is a perfectly legal and sensible way to pass life insurance onto a named beneficiary without the worry of inheritance tax.

By having life insurance cover (typically a whole of life insurance policy) that is set to be paid into trust in order to be used to pay the inheritance tax, you can make provision for any issues prior to your death. It is also important to make a will that dictates how the estate is to be passed on.

In order to use life insurance to offset the dreaded death tax in this way, you will need to calculate the value of the estate well in advance and take out an appropriate life insurance policy that will be enough to manage any tax bill due.

Help from Quick Quote Protect

Of course, here at Quick Quote Protect we have specialist advisors ready to help. Give us a call and ask how to avoid inheritance tax with a trust-enabled life insurance policy and our experts will be on hand to work with you to create a suitable (and completely legal) solution to your potential inheritance tax problem. Whether it’s simply to avoid inheritance tax on your parent’s house, or as part of in-depth financial planning for a sizable estate, we have the experience and knowledge to provide a perfect solution.

Give us a call using the number below today or fill in our contact form to have one of our trusted and experienced advisors call you back at a convenient time.

For more information regarding IHT and putting a life insurance policy into trust, read our related guides:

• What is Inheritance Tax and How Can Life Insurance Help?
• Putting Your Life Insurance in Trust: How Trust Funds Work