‘Inheritance Tax; – it is, broadly speaking; a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue’ 

Roy Jenkins


Inheritance can be a difficult topic to discuss with your family but with the right advice, it doesn’t need to be.

Here are IBC’s top tips on what you need to know about inheritance before having some of those important conversations.


Wealth looks different to different generations 

Did you know that the baby boomer generation (anyone born between 1946 and 1964) has the largest percentage of wealth in the form of physical property? Generations after this, like generation X (born between 1965 and 1980) and millennials (born between 1981 and 1996) have struggled with higher rents, lower incomes and a greater challenge building a deposit for a mortgage.

This means that one generation’s financial priorities could be entirely different from another’s, so on top of talking to your children and grandchildren, it is also important you talk to an independent financial adviser that can give you multiple generational perspectives.


Inheritance Tax isn’t as scary as it seems

Inheritance tax is one of the UK’s most abhorredtaxes – but with the estate threshold of the tax being £325,000 (Couples can pass all of their tax-free allowance on to their spouse or civil partner upon their death, effectively giving them a combined £650,000 IHT threshold), only 4{667290b260ff28168e623797c2c2c0d16bc37bf47122766d0a4dd91733155e89} of estates actually end up paying it. And even if you might be part of that 4{667290b260ff28168e623797c2c2c0d16bc37bf47122766d0a4dd91733155e89}, there are still opportunities to increase that threshold and even offer a tax-free gift – as David Cameron’s mother famously did in 2011.

Although it is one of the UK’s most loathed taxes, inheritance tax only actually makes up less than 1{667290b260ff28168e623797c2c2c0d16bc37bf47122766d0a4dd91733155e89} of the UK’s total tax income. This is why in 2018, the Organisation for Economic Cooperation and Development proposed using inheritance tax as an option to reduce inequality amongst the younger generations – an idea that received a mix reception but interestingly was more positively received by those that would be the eventual beneficiaries of that taxed inheritance. Knowing this, it is important to try and bear in mind what your beneficiaries’ thoughts are on inheritance tax too, as the way you manage it could shape their economic future in more ways than one.


What options are available to you?

Here are just some of the options available to you for passing your wealth on to the next generation.

  • Trusts – After a life of saving, the thought of the next generation wasting your hard-earned wealth can be a frightening thought. Fortunately, a trust will allow you to pass on wealth to your beneficiaries only when specific conditions are met.


  • Gifts– This gives you the chance to see your children enjoy some of their inheritance while you are still here, but timing is important. A time period of 7 years between gifting and your death will determine if your beneficiary needs to pay a tax or not. A free threshold of £325,000 enables you to transfer up to this amount without any inheritance tax levy.


  • Business Property Relief(BPR) has been an established part of inheritance tax legislation since 1976. And as an investment incentive, it’s relatively straightforward. Once BPR-qualifying shares have been owned for at least two years, they can be passed on free from inheritance tax on the death of the shareholder. Not every interest in a business will qualify for BPR. Broadly speaking, investments in the following kinds of businesses that carry on a trade rather than investment activities could qualify for BPR, including: Shares in qualifying companies that are not listed on any stock exchange; Shares in qualifying companies listed on the Alternative Investment Market (AIM) and an interest in a qualifying business, such as a partnership. Since 2013 investors can hold AIM-listed shares within Individual Savings Accounts (ISAs). This means an ISA that invests specifically in AIM-listed companies expected to qualify for BPR can offer inheritance tax exemption as well as the traditional ISA benefits of tax-free income and capital growth.


  • Venture Capital Trusts– These are highly tax efficient closed ended collective investment vehicles.


  • Enterprise Investment Schemes – By investing in smaller companies not listed on the stock exchange, these can benefit from up to 30{667290b260ff28168e623797c2c2c0d16bc37bf47122766d0a4dd91733155e89} tax relief.


Make sure you are protected too

While you make suitable plans for your children, it is still important to plan first for your retirement. Medical science is better than it has ever been which means the amount you have to save for your prolonged retirement will be higher than it has ever been. Make this another consideration for when you are planning what you leave behind.

Talk to IBC

IBC team members range in age from 19 to 69 – and can offer a perspective from every generation. We are here to help assess your unique situation and give insights and practical legal steps to ensure your wealth is distributed in the smoothest way possible.


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