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Communication is key. Families that discuss their finances openly can make informed decisions that can meet everyone's interests.

Article by Akwasi Duodu

Solving the IHT planning puzzle as a family

Inheritance tax planning can often be uncomfortable to discuss. After all it involves having discussions with our parents about life after they pass and their money and assets. However, when families approach it with openness, they can start the inheritance tax (IHT) planning process early.

By talking openly about wealth, death, and legacy, families can deal with any potential problems in advance.  This can help keep and transfer wealth in the family.

This article looks at how a united family approach can make for successful IHT planning.

What is inheritance tax planning?

Inheritance tax planning in the UK involves making financial decisions to reduce the tax due on assets passed to beneficiaries when you die. This process aims to protect the value of an estate by using available exemptions, reliefs, and allowances.

Common methods include making gifts, setting up trusts, and structuring the estate efficiently. By carefully planning and seeking professional advice, individuals can reduce the amount of inheritance tax, ensuring more of their wealth is passed onto future generations.

The importance of early conversations

Communication is key. Families that discuss their finances openly can make informed decisions that can meet everyone’s interests.

These discussions can include matters such as the job each member will have in managing family wealth, and any expectations around inheritance.

Understanding inheritance tax

Before starting the IHT planning process, families should find out the rules on gifting, the Nil-Rate band, and any potential exemptions and reliefs on offer.

Knowing about these rules helps families understand the facts and avoid problems such as too much gifting that can lead to unintended tax consequences.

If you would like to learn more about this topic, below are links to a few of our inheritance tax articles and guides.

In the following sections of this guide to solving the inheritance tax planning puzzle as a family, we focus on gifting, estate planning and trusts.

A joined-up approach to gifting

A family that takes a well thought out approach to gifting can help reduce an IHT bill. By spreading gifts throughout the family over time, rather than leaving until later stages of life, can mean using annual gift allowances and small gift exemptions.

Addressing the seven-year rule

This rule requires that gifts must be made at least seven years before death to be exempt from IHT. If families use gifting to reduce IHT, they should be aware of this, so that large asset transfers are completed in advance of this deadline.

Related reading: IHT & gifting

The role of estate planning

An estate plan is formed to manage and transfer wealth. It should made before it is needed, with input from all family members who will be affected. This plan can include wills, trusts, and instructions that reflect the individual’s wishes and provide a clear guide for the distribution of assets.

Related reading: What does an estate planner do?

Setting up trusts

Trusts can be a tool to manage family wealth, offering control, protection, and potential tax benefits.

Families should consider setting up trusts early to benefit from their advantages. Delaying this can limit the options available and increase the urgency and stress associated with estate planning.

Related reading: Using trusts to reduce or avoid inheritance tax

The power of professional inheritance tax advice

A clear plan within the family, supported by professional advice, is key to solving the inheritance puzzle.

Talking with IHT advisers, tax professionals, and estate planners can provide clarity and direction so that the family’s wealth planning is robust, tax-efficient, and understood.

Conclusion – solving the inheritance tax planning puzzle as a family

If families take a joined-up approach, inheritance planning is not just a one-off financial task.

It needs ongoing communication, teamwork, and open discussions. This can help avoid common mistakes such as the seven-year rule, lack of estate planning, and the hurried forming of trusts.

Early and ongoing discussions, with professional guidance, encourages families to keep and look at their wealth across generations.

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