Estate planning uses legal methods to avoid paying inheritance tax after your death, allowing you to leave more to your loved ones. If this is something you need to consider, these three tips can help.
Give wealth away now
There is a seven-year rule for giving away sums of money, where it will not be counted as part of your estate for inheritance purposes. If you die within those seven years, inheritance tax is paid on a sliding scale, with 100% due if death occurs in the first three years.
Other amounts that can be given, even within that seven-year period, are £3,000 each tax year, gifts for weddings, gifts below £250, and gifts out of surplus income for purposes like school fees for grandchildren, JISAs, ISAs, and SIPPs. You should also consider who will manage your finances if you are incapacitated, such as by setting up a Lasting Power of Attorney or LPA online. When setting up an LPA online, you will choose someone you trust to oversee matters like finance and welfare.
Specialist investment strategies
There are some investment strategies that can reduce inheritance tax, such as investing in smaller companies. However, be aware that these are a higher risk investment strategy, which can be tricky to sell at short notice.
Pensions
Pensions are not covered by your will, so make sure you have registered who you would want to inherit unspent pension with your pension provider. Although currently pension savings are not counted in inheritance tax liability, this is set to change from April 2027.
