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How to plan for Inheritance Tax

Inheritance tax planning for business owners

Inheritance tax planning is a way of protecting your family from financial burden after you’ve gone. Payable on the total value of property, money and possessions after you die, inheritance tax can have a huge impact on the personal representative/s you leave behind as they will be liable for paying it.

Personal representative/s are the person or people you appoint in your Will to administer your estate after your death. If you own or have interests in a business, your personal representative, often a surviving family member, may have little or no knowledge of its implications for inheritance tax.

The good news is there are plenty of ways business owners can plan ahead for the impact of inheritance tax on their estate. We’ve summarised a few below. Take care to explore your options fully.

What is inheritance tax?

Inheritance tax (IHT) is paid on the value of your estate when you die. It applies to the total value of all assets, property, funds and investments, including any businesses you own or have interests in.

For the tax year 2022-23, estates up to the value of £325,000 fall under the nil-rate tax band. This means that if the total value of your assets (including your family home, assets and investments) is at or below this limit your family will not be liable to pay inheritance tax.

The current standard rate of inheritance tax is 40% and charged on the part of your estate above the nil-rate band. For example, for an estate valued at £1,500,000 inheritance tax would be charged at 40% of £1,175,000. The personal representative would be liable for IHT of £470,000.

The only exception to this rule is if you leave more than 10% of your estate to charity. In this case, IHT would be calculated at 36%.

What can business owners do to plan for inheritance tax?

Inheritance tax affects more estates than ever so it makes sense to understand the current rules and limitations so you can plan accordingly. Taking steps now could reduce the IHT burden on your family after you’ve gone. Here are a few options to explore.

1. Gift a lump sum to family members

Cash gifts are a simple way to reduce the value of your estate and provide for loved ones during your lifetime. Gifts of up to £3,000 a year are exempt from inheritance tax. You can gift the same person small amounts over the course of the year providing the total amount gifted to that person does not exceed £3,000.

Gifting allows you to transfer cash assets in a tax-efficient manner and is useful if you want to make a contribution towards a large value purchase or help your child top up their savings.

For inheritance tax purposes, any cash gifts you make still count towards your overall estate value for a period of 7 years from the point of gifting.

2. Explore the possibilities of Business Relief

If you would like the peace of mind of knowing your business has the potential to continue providing for your family after your death, consider researching opportunities for business relief. Without this additional security, your business may need to be broken up and sold off to cover any inheritance tax liability.

Business owners may claim inheritance tax relief on certain types of asset. Agriculture is a key sector eligible for relief with qualifying businesses eligible for relief at rates of 50% or even 100%.

3. Put money or assets into a Trust

To retain control over your money and decide who benefits from it after your death, you may consider putting some assets into a trust. There are many different types of trusts to choose from. It’s worthwhile spending time with your financial planner to choose the right trust for your pot, intended recipient, and desired access level.

Certain trusts may:

  • pay a monthly income that you can use to supplement your pension and maintain your standard of living

  • allow you to withhold funds until the person reaches a certain age or until you decide they are mature enough

  • keep money within your family bloodline by offering protection against the eventuality of divorce or bankruptcy.

4. Consider a Life Assurance plan

Life assurance is ideal if you would like the certainty of having measures in place to protect your family against the burden of taxes after your death. A policy could pay out a tax-free cash lump sum to cover full inheritance tax liability after your death. Without a life assurance policy in place, your personal representative/s may have to take out a loan to cover the HMRC bill.

Through paying regular premiums you effectively build up a pot of money your family can use to cover the inheritance tax bill after you’ve gone. However, it is imperative that the life assurance plan is written into trust to avoid it forming part of your estate value.

Free download: Inheritance Tax Planning

These are just some of the options available to business owners to assist with inheritance tax planning. For further information and guidance, download our free Inheritance Tax Planning brochure.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

Advice relating to Trusts necessitate the referral to a service that is separate and distinct to those offered by St James’s Place. Trusts are not regulated by the Financial Conduct Authority.


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