Estate planning and inheritance tax should primarily be about taking steps to protect your estate for future generations.

This video blog outlines the relationship between Estate Planning and Inheritance Tax planning and how you can protect and pass on your estate to your loved ones through various tax efficient strategies.

Video Transcript

Many people are keen to ensure they reduce their estate’s future liability to inheritance tax by engaging in tax planning to reduce or mitigate the tax bill.

The tax planning is a very important aspect, but it is just that – an aspect.

In reality there is much to be said for looking at this differently. Think about estate planning first, with tax planning second. The two are symbiotic, but should be led by the estate planning aspect.

How does estate planning differ from inheritance tax planning? and how can you go about making sure you find the best solutions for your situation?

Estate Planning is about taking steps to protect your estate for future generations, not especially about reducing tax.

For example, many people want to ensure their wealth and assets are protected for their bloodline.

They want to protect against children inheriting part of their wealth, then in the future being subjected to a divorce or bankruptcy and part of the wealth disappearing for the benefit of the ex-spouse of that child. In the case of bankruptcy for the benefit of creditors.

Making plans today to ensure wealth and assets remain in the bloodline and future inheritors are themselves protected is an example of estate planning.

Any Inheritance Tax Planning becomes a part of the wider estate planning exercise.

For many this requires a delicate balance between the needs of the individual or couple today and the future well-being of their beneficiaries.

Leaving a legacy, which is not unnecessarily reduced by future taxation, is a desire many people have. But they don’t want to leave themselves short in their own lifetime.

Outright and large gifts can be complicated by this contradictory position, but major gifts also often require the donor living seven years. Then there may be nervousness about when an individual is comfortable for their offspring or beneficiaries to receive the gift.

We also have to factor in that future government might introduce more stringent rules and tax rates.

It is a complex position, but the good news is that there are ways to plan for inheritance tax, which can deal with most, possibly all of these factors. You just need the right solution and suitable advice.

There are inheritance tax exemptions and allowances, making sure these are properly used is a simple but highly effective step.

There are gifts which can be made on a regular basis, in a drip feed fashion. For example, every individual can make a gift of £3,000 per year which is immediately outside of the tax loop.

There are investment schemes, such as the Enterprise Investment Scheme, where the value of the invested sum is outside of an estate for inheritance tax purposes after just two years.

Which of these, or other possible tax savings options, work best for you, will be dependent on your circumstances and wider estate planning.

How you use these will be subject to a skilled appraisal of your situation, aligned to your wishes.

The key is to make sure the estate planning and inheritance tax planning are co-ordinated into a plan which meet all your requirements both short-term and long-term.

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To speak to an experienced Cardiff-based IFA about estate planning and inheritance tax strategies, contact Tony Thomas on 07585 592494 or