Some other issues to consider are:
- Make a tax-efficient will (see the section Making a will) and keep it up to date. Dying intestate (see our PDF guide Intestacy rules) is rarely tax-efficient and has many other disadvantages.
- Give away assets that you will not need.
- Make use of the annual exemptions to pass down assets free of IHT. In this case, it is very much a case of “If you don’t use them, you will lose them.”
- One of the best ways to make use of the annual exemptions is to make a gift of a life assurance policy in trust. This approach ensures that you will provide your beneficiaries with a substantial tax-free lump sum, even if you were unfortunate enough to die prematurely. Of course, it is important that you have enough capital and income resources to be able to afford to maintain the regular premiums.
- Under the new rules introduced in October 2007, widows and widowers now inherit their deceased spouse's nil rate bands. So if your late spouse died leaving you all their estate your nil rate band is effectively doubled. If you died this year, you would have your own nil rate band of £325,000 plus your inherited extra £325,000. So the first £650,000 of your estate would be free of inheritance tax. It is worth checking out and recording what the portion was on your late spouse's death.
- Pay into a pension plan. If your pension gives you a good income in retirement, you can afford to give away some investments.
- Equity release can reduce IHT and boost income in retirement or provide the means to make gifts.
- Consider starting one of the range of lump sum inheritance tax plans that are now available. These allow you to make a lump sum gift into a trust and retain a good deal of control over it for the rest of your lifetime. Some insurance-based plans can save IHT and give you income, although they are usually only effective if you survive for at least seven years after starting the plan.
- Do not forget about the possible impact of other taxes. You may have to pay capital gains tax (see the section Capital gains tax) if you give away an asset that you bought for much less than its present value.
