IHT mitigations (Inheritance Tax)

Yellowkite

Hi everyone,

My question is what sort of things are people thinking about or doing to mitigate future IHT charges? Some background….

I am new here and have had a good look through the forum chats, and in particular relating to pensions and government proposals to include pensions for the purposes of Inheritance Tax (IHT). Like many this has no doubt come as a shock.

I cashed in a good company pension scheme to create a SIPP given what I saw at the time as the main advantages bring early withdrawal from age 55, variable drawdown, and passing on funds to beneficiaries.

I understood that I was essentially taking on all the risks that come from changing from a DB scheme and moving to a SIPP investing pension (notwithstanding IFA advice). And we all understand that tax rules are sometimes “tinkered” with by governments. But the new rules of including pension into estates and hence IHT calculations is definitely a radical change.

Having said that markets being what they are, the investment return has been strong in the last 5 years, with a few bumps along the way.

So, my question is what sort of things are people thinking about or doing to mitigate IHT charges?

As a retired couple we are already gifting £3kpa (Annual Exemption), gifting lump sums on occasions (under PET rules / 7 years etc.), and “Gifting from Surplus Income”.

We have ISAs to help with this, but any marginal pension withdrawal is at “higher” levels. And living in Scotland brings a 5% premium on tax charges for marginal withdrawals.

So, the balance to be struck is making sure the pension funds is sustainable, versus passing some gifts to children now (at a “cost” of 45% tax paid before gifting), versus reduced or no gifts now but letting the fund grow but with possible / likely IHT later.

Is anyone a fan of other options? For example,

LIIT – Life insurance in Trust

BRI – Business Relief investments

DGT – Discounted Gift Trusts

Any other trust types or options?

What made you choose other options and what did you see as the pros and cons?

Many thanks in advance for any comments.

Keep_pedalling

The only one we have used is term insurance to cover failed PETs should we meet an untimely end after making substantial gifts. The other one I would recomend is have a good time yourselves and spent a good chunk of your wealth on yourselves.

mrklaw

I’m making no plans because its highly doubtful we’ll be anywhere near the threshold and if we are it’ll only be a little bit and my kids can worry about it.

in the unlikely situation our funds grow faster we’ll spend a bit and give away a bit - maybe gifting from excess income. But its mainly for our retirement and the kids’ll get the house.

‘die with zero’ is a pretty hard target to aim for as you don’t know how your returns will be nor when you will die. But ‘die with slightly less than the IHT threshold’ seems like something you could correct for a little better?

HappyHarry

Annuities are very popular now with the combination of strong markets recently, good annuity rates and the repositioning of pensions as a retirement income stream rather than an IHT efficient savings vehicle.

An annuity purchase can then reduce the need for a safety net of other assets, allowing more peace of mind when gifting.

SouthCoastBoy

I don't see iht as a problem. If my wife and I die leaving an inheritance that is taxable it means my beneficiaries will inherit a substantial sum. Having said that I will be gifting some money over the next 8 years, already gifted around 80k

tigerspill

I will hopefully spend it all.

DRS1

Have you considered moving to Monaco?

Dead_keen

My plan: Gift early and gift often.

Getting money out of the pension at higher tax rates now to gift early and help the kids out (or whatever) seems, to me, a sensible plan if there is a good chance that you will reach age 75.

squirrelpie

if there is a good chance that you will reach age 75.

If you asked me at the start of this year, I would have said there's an excellent chance of reaching 75. Now, no better than evens. Which is to say, what sounds sensible can vary quite rapidly and the best laid plans of mice and men etc.

Linton

We will do absolutely nothing to mitigate IHT changes.

Grumpy_chap

AIUI, there are only four things that can be done to reduce IHT:

1. Spend your money
2. Give your money away - proper gifts, no strings
3. Leave your money to charity in your Will.
4. Make a voluntary donation to the UK State, which you can choose to specify either to fund General Public Expenditure or to Reduce the National Debt