When Is the Right Time to Consult an Inheritance Tax Advisor?

Getting the Timing Right

Does IHT affect me? And when should I start considering its potential impact?

Inheritance tax (IHT) can affect anyone. However, the extent of its impact varies based on individual circumstances and their estate assets.

IHT poses as a complex tax labyrinth for individuals managing their estates. As assets pass from one generation to the next, the implications of these taxes can significantly impact the wealth left behind. Timely planning is vital to mitigate these tax burdens and to ensure the smooth transfer of assets. However, with ever-changing tax laws and intricate regulations, navigating inheritance taxes alone can be daunting. This is where engaging the expertise of an inheritance tax advisor becomes invaluable. Consulting with a qualified advisor can provide clarity and strategic insight into estate management. This in turn, helps individuals and families make informed decisions to protect their assets and minimise tax liabilities. In this blog, we’ll explore the role of an inheritance tax advisor and discuss when it’s the right time to seek their professional guidance for effective estate planning and management.

Understanding Inheritance Tax

Inheritance tax is a levy imposed on the estate of a deceased individual, affecting the transfer of assets to beneficiaries upon their death. IHT is calculated based on the total value of an individual’s estate, including property, money, investments, and possessions.

The tax-free threshold, known as the nil-rate band, is currently £325,000 per taxpayer. Additionally, there is a residence nil-rate band (RNRB) that applies to the value of a person’s home if it is passed on to their direct descendants, such as children or grandchildren. However, if the value of an estate exceeds £2 million, a taper is implemented on the residence nil-rate band, resulting in a reduction of relief by £1 for every £2 over the £2 million threshold. Furthermore, if an individual’s estate surpasses £2.35 million, they become ineligible for RNRB relief. For the 2024/25 tax year, the residence nil-rate band is £175,000. Any value that exceeds these thresholds, will be subject to IHT at a rate of 40%.

Do I Need an Inheritance Tax Advisor?

When do I need to consult an IHT expert?

Here we explore four circumstances in which seeking advice from an inheritance tax expert becomes invaluable.

Scenario One

You have found yourself with a significant increase in asset value. Such circumstances can potentially lead to higher tax liabilities upon transfer to beneficiaries.

Scenario Two

Owning multiple properties, and even property in other countries, can introduce complexities in tax treatment and compliance. These circumstances warrant expert advice to navigate tax laws effectively.

Scenario Three

Life events such as marriage, divorce, or the birth of children, can also impact estate planning strategies and necessitate the expertise of a tax advisor to ensure optimal outcomes.

Scenario Four

You are in receipt of an inheritance. This can trigger tax implications that require careful consideration and planning to minimise tax liabilities. Consulting with an IHT advisor in these situations can provide individuals with tailored strategies and peace of mind in managing their estates and mitigating tax burdens effectively.

IHT Considerations for Non-Domiciled

Non-domiciled individuals, often referred to as non-doms, are individuals who are not considered domiciled in the UK for tax purposes. Because of this, those deemed to be non-dom, may have different tax obligations regarding their UK and overseas assets. Under the non-deemed domicile rules, individuals who have been UK resident for a certain number of years may become deemed domiciled in the UK for tax purposes. This thereby results in subjecting their worldwide assets to inheritance tax in the UK. Non-doms may benefit from certain tax planning opportunities, such as the remittance basis of taxation, which allows them to pay tax only on their UK income and gains brought into the UK. However, navigating the complexities of IHT for non-doms and the non-deemed domicile rules requires careful consideration and expert advice to ensure compliance and optimise tax efficiency.

Benefits of Consulting an Inheritance Tax Advisor

Consulting an inheritance tax advisor offers numerous benefits in navigating the complexities of IHT and ensuring effective estate management. One of the primary advantages is strategic estate planning to minimise tax liabilities. This includes devising tailored strategies to optimise tax efficiency and maximise assets passed on to beneficiaries. Additionally, advisors provide guidance on legal structures and trusts, assisting individuals in establishing tax-efficient arrangements to protect assets and facilitate smoother estate transfers. Moreover, advisors help navigate complex family situations, such as disputes among beneficiaries, ensuring fair distribution of assets while addressing potential tax implications. Ultimately, consulting an inheritance tax advisor offers peace of mind, knowing that an estate is organised, compliant with tax regulations, and optimised for the benefit of your loved ones.

When to Start Planning: Timing Is Everything

The importance of early planning cannot be overstated. Beginning the planning process early allows individuals to take proactive steps to minimise tax liabilities and ensure their assets are passed on efficiently to beneficiaries. Certain life events can trigger changes in an individual’s financial circumstances or estate planning needs. This makes it essential to seek professional guidance to navigate potential tax implications effectively. By starting the planning process early, individuals can implement strategic tax-saving strategies and legal structures to optimise their estates and provide financial security for their loved ones in the future.

Frequently Asked Questions for an Inheritance Tax Adviser

1. How often should I review my estate plan with my advisor?

The frequency of reviewing your estate plan with your advisor depends on your individual circumstances and any significant life events that may occur. Generally, it’s advisable to review your estate plan at least every three to five years or whenever there are major changes in your life.

2. What’s the difference between an inheritance tax and an estate tax?

The main difference between inheritance tax and estate tax lies in who is responsible for paying the tax. Inheritance tax is typically paid by the beneficiaries who receive assets from a deceased person’s estate, based on the value of those assets. Estate tax, on the other hand, is levied on the estate itself before assets are distributed to beneficiaries.

3. Do I need to pay inheritance tax on gifts or transfers made during my lifetime?

You may be subject to IHT on gifts or transfers made during your lifetime if they are made within seven years before your death. These gifts are subject to what is known as the “seven-year rule.” If you survive for seven years after making the gift, it is generally exempt from IHT. However, if you die within seven years of making the gift, it may be subject to inheritance tax, depending on certain exemptions and thresholds.

4. Can I use trusts to reduce my inheritance tax liability?

Yes, trusts can be a useful tool for reducing your inheritance tax liability. There are various types of trusts available, each with its own tax implications and benefits. By placing assets into a trust, you may be able to remove them from your estate for inheritance tax purposes. Doing so can potentially reduce the overall tax liability on your estate. However, it’s important to seek professional advice to ensure trusts are set up correctly and meet your specific objectives.

5. Can inheritance tax planning also help with retirement planning?

Yes, inheritance tax planning can also complement your retirement plans. By implementing effective IHT strategies, you can structure your assets in a tax-efficient manner to provide for your retirement income needs, while also minimising the tax burden on your estate. Additionally, certain retirement planning vehicles, such as pensions, may offer tax advantages that can complement inheritance tax planning strategies.

Future Planning with Confidence

So, when is the right time to consult an inheritance tax advisor? Timing is everything. Early consultation allows individuals to proactively address potential tax implications. Furthermore, it can help optimise tax-saving strategies, and ensure their assets are passed on efficiently to beneficiaries. From significant life events to changes in tax laws, there are numerous indicators that signal the need for guidance from an IHT advisor. It is important to not wait and begin planning for the future today. By seeking timely advice and implementing tailored strategies, individuals can secure their financial future, protect their assets, and provide for their loved ones with confidence and peace of mind. Don’t wait until it’s too late—consult with an inheritance tax advisor and take control of your estate planning today.