ESTATE PLANNING STRATEGIES

There are five general strategies for Estate Planning and mitigating Inheritance Tax. Not all of these approaches would be used to build an estate plan, in fact most estates would use just the first one or two approaches and only a very few would need to look further than the third. The mechanics of the rules are complex and subject to detailed exceptions and prohibitions and it is crucial to navigate through these with great care.

Asset Reduction

Reducing your estate through making lifetime gifts with the intention to take assets out of your estate and so not subject to the inheritance tax charge on death.

Asset Conversion

Converting assets of the estate that do not qualify for inheritance tax relief into assets that do qualify. Business and agricultural assets are often the target for this strategy as qualifying assets of this type can qualify for full or partial exemption from inheritance tax.

Asset Freezing

This approach seeks to lock or freeze the value of assets in your estate but providing that any future growth will pass on to others with the intention that that growth will fall outside your estate for inheritance tax altogether.

Liability Offset

Reducing the net assets of the estate by taking out loans or other liabilities where the assets acquired, or money borrowed are converted into assets that are excluded or exempt from inheritance tax or are made the subject of gifts

Capital Asset Conversion

Where an individual has capital which they no longer require they may consider purchasing assets which produce income for a specified term. This provides a stream of income payments to be used for living expenses, but the capital value of the asset decreases as the end of the term approaches thereby reducing the capital value of the overall estate and the value chargeable to Inheritance Tax.  However, the income from the asset would be subject to income tax. With the higher rate and additional rates of income tax at 40% and 45% respectively, being the same as or higher than the 40% to inheritance tax, this approach has lost a great deal of relevance until such time as there is a significant change to the tax rates.