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Inheritance Tax : a bitter pill?

21 September 2011

As Benjamin Franklin said, the only things in life that are certain are death and taxes. Yet, despite that certainty, most of us will go out of our way to avoid thinking of either!

As advisors, we recognise that inheritance tax (IHT) can be a difficult subject to broach with you, our clients. None of us particularly want to address the issue of our own mortality.   

However, while the prospect of 40% IHT on your estate may be a bitter pill to swallow, there’s no point in sugar-coating the reality of the situation. Whether you stand to inherit - or leave money to your loved ones - failing to face the issue of IHT head-on could potentially cost hundreds of thousands of pounds in tax.

Of course, smaller estates may not be liable to IHT, as everyone is allowed to leave a certain amount IHT-free. This is known as the nil rate band, currently capped at £325,000 until 2015. However, anything you leave above that amount (other than to a spouse or civil partner) could be taxed at 40%. 

So, very broadly, if you leave behind £500,000 in taxable assets, your estate could pay £70,000 in tax. Ouch!

And don’t forget that this includes the value of your house. As property values recover – the average cost of a 4 bedroom house in Edinburgh in the year to May 2011 was £410,000 - more and more people will fall into the IHT net.

That’s the bad news. The good news is that we can help. While IHT can be a complex tax, it can be reduced or avoided with some targeted planning. In the right circumstances, and with advice taken at the right time, there are many steps you can take to mitigate any potential liability.

So, what should you do?

The single most important thing to do right now is establish what your IHT exposure might be. This will identify whether you have a potential IHT problem and, if so, the extent of that problem. At Springfords, we feel so strongly about ensuring that our clients don’t pay unnecessary IHT that we’ll carry out an initial assessment – wait for it - free of charge. That’s not the sort of offer you get from an accountant every day!  

Our initial IHT assessment won’t tell you how to avoid IHT – that’s the next step - but it will give you an idea of your likely tax burden. It might be a pleasant surprise, and put your mind at rest. On the other hand, it might be a bit of an eye-opener! Either way, forewarned is forearmed. If IHT is an issue for you, we can advise on any actions you might be able to take to mitigate the future burden, from effective gifting to complex trust arrangements.

This is your chance to bite the bullet and address the issues of death and taxes head on. Just contact your usual Springfords tax adviser for more information. If you’re not a Springfords client yet, but would like our help in addressing your IHT position, please email for more information.

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