Making sure your loved ones benefit most from your estate

The coronavirus (COVID-19) pandemic is a ‘Black Swan’ event. No one thought it could happen but it did. And such is the nature of Black Swan events that you do not know what the next one will be or when it will be. What the pandemic has done is to lead people to focus on their mortality and as part of that, how their wealth will be distributed after their death.  In particular, how minimise the tax-take of the government be minimised?

In a speech in 1995 John Major, the then Prime Minister, spoke about wealth ‘cascading through the generations’. His objective was to reduce inheritance tax (IHT) so that families could benefit from the hard work of their predecessors. Mr Major was not PM for much longer and this aim was sadly short-lived.

The amount of wealth that can be passed on without being subject to IHT, known as the nil-rate band, did increase slowly however, but has been stuck at £325,000 since 2009 and is now frozen for a further five years until 2026.   

The effect of this is that more and more people are being caught in the IHT net, even those with relatively modest estates.

How is IHT calculated?

On the death of a person the value of all their possessions is added up and a final figure confirmed. Any balance above the nil-rate band, currently £325,000, is then taxed at 40%.

Possessions includes:

  • Property
  • Cash and investments
  • Businesses
  • Jewellery
  • Works of Art
  • Vehicles
  • Household items such as electrical equipment
  • Proceeds from life assurance (unless written under trust)
  • Overseas assets
  • LESS – debts
Menzies icon of a calculator

However, there are many reliefs available and, if you agree with Roy Jenkins, another major political figure of 20th century, that  “Inheritance tax, is broadly speaking a voluntary levy paid by those who distrust their Heirs more than they dislike the Inland Revenue”, things can be done about it.


branded icon of notebook from menzies

Unless you plan, a large IHT bill could be presented on your day of reckoning. And of course, most of us do not know when that might be.  Therefore, if ensuring that your assets pass to your family (or other interests, eg charity) at minimal cost, is important you then plan early.


  • The tax rate is 20% of chargeable lifetime transfer (ie those made during lifetime)
  • For 2021/2022 there is an additional nil-rate band of £175,000 which is related to residential property in which the deceased has previously resided.
  • The nil-rate band is transferable between married couples and those in civil partnerships. This effectively doubles the band for many.
  • Though complex, the additional nil-rate band pertaining to residential property can effectively be double for married and civil partnership couples.

Giving during your lifetime

It might sound obvious but giving away your money during your lifetime is an excellent way of reducing your IHT bill. And it has the advantage of you being able to enjoy the giving (probably as much as the receiver enjoys the receiving!).

There are partially exempted and fully exempt gifts (or transfers).

  • Potentially Exempt Transfers (PETS) – these can be gifts of any size. The value of the gift (or more accurately, the reduction in the value of the estate) is exempt from the tax calculation if the giver survives for seven years after the gift has been made.
  • Chargeable Lifetime Transfers – CLTs are gifts which are not PETs nor fully exempt (see all the other types of gift, below). The tax rate is 20%. An example of a CLT would be a gift into a discretionary trust.
  • Annual Gift Exemption – £3,000 per annum. Any unused exemption can be carried forward from the previous year.
  • Small Gifts Exemption – Gifts of up to £250 to any number of recipients. This cannot be used in conjunction with the annual gift exemption.
  • Gifts on marriage – £5,000 to a child, £2,500 to a grandchild and up to £1,000 to anyone else.
  • Gifts out of income – If the gift is out of income (rather than savings or capital), this is unlimited. The gift should be seen to be normal expenditure and not reduce the givers standard of living.
  • Gifts to charities, political parties, universities and other HMRC recognised bodies.
  • Maintenance payments to ex-spouses or to infirm dependents.
  • Small businesses can be given away, as can shares on the Alternative Investment Market (AIM).
  • Gifts of agricultural land or buildings

We would of course recommend that advice is sought before any gift is made. Not just to make sure that is qualifies, but also that is it wise! 

Meeting the tax bill head-on

An alternative to giving away assets would be to simply insure the liability. A life assurance policy equal to the amount of the liability is taken out. This pays out to your beneficiaries on your death to offset the inheritance tax payable. As the proceeds of the life policy are paid directly to beneficiaries rather than your estate, this does not attract an IHT bill of itself.

When IHT is calculated. It also means payment to your beneficiaries may be quicker, as the money will not go through probate.

Peace of mind after you’re gone

Making sure that you’ve made plans for after you’re gone will give you peace of mind. Its not pleasant to think about, but it means that your loved ones can carry out your wishes and be protected from IHT.

To discuss how we could help you to pass assets efficiently to the next generation, please contact us for more information.



Web MWM EB  
London Office Lynton House, 7-12 Tavistock Square London, WC1H 9LT  

T: 020 7465 1980
Solent Office 3000A Parkway, Whiteley Hampshire, PO15 7FX  

T: 01489 582 011

MWM Employee Benefits Ltd is an authorised representative of Menzies Wealth Management who is authorised and regulated by the Financial Conduct Authority (486548). Registered address: 1st Floor, Midas House, 62 Goldsworth Road, Woking, GU21 6LQ Registered in England and Wales 06597008.

Posted in Blog