How to reduce the cost of inheritance

St. Albans-based financial advisors Trust Matters offer a range of services to organise your estate

St. Albans-based financial advisors Trust Matters offer a range of services to organise your estate efficiently for tax purposes. - Credit: Getty Images/iStockphoto

St. Albans financial advisors Trust Matters will hold an event next month to explain how they can reduce your inheritance tax liability.

Research shows that revenues collected by HMRC from death duties are continuing to grow. This is partly due to rising property prices increasing the value of the average estate.

In the face of this, many of us are wondering how we might reduce our inheritance tax liability, especially when it often seems that the wealthiest avoid paying the tax altogether. This was the case in 2016, when the Duke of Westminster died and left his estate of more than eight billion pounds to his heirs, with no death duty applied.

The key to this success was careful inheritance tax planning. Read on to learn about how to reduce estate tax, and find out about an exclusive boardroom briefing event being held on February 28.

What is inheritance tax?

Inheritance tax (IHT) is a tax on the estate (property, money and possessions) of the deceased.

Who pays the tax?

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The executors of your will are responsible for paying the inheritance tax bill. It is important to note that your executors usually have to settle the outstanding inheritance tax liability within six months of death to avoid paying interest.

How much will I pay?

Every person has a nil rate band (£325,000), which means that the first £325,000 from their estate can be passed on tax free. Married couples therefore benefit from a combined nil rate band of £650,000.

Any excess is calculated and charged at 40 per cent, although you can pay a reduced rate of 36 per cent if you leave 10 per cent or more of the net value of your estate to charity in your will.

In April 2017, the residence nil rate band came into force, which gives you an extra allowance if you pass your residence to your direct descendants (you must have lived in the residence at some point). This allowance is currently £125,000 per person and rises by £25,000 each tax year until tax year 2020/21, when it will be £175,000 per person.

Married couples can therefore achieve a potential IHT threshold of one million pounds (£325,000 x 2 + £175,000 x 2). However, there are complicated qualification rules for the allowance.

Is inheritance tax paid out of the estate?

Inheritance tax must be paid before probate is granted – it is therefore paid before the executors have access to the estate. This is something that many families struggle with. Once it is paid and probate has been granted, the executors can reimburse themselves from the estate.

What can I do to minimise my inheritance tax liability?

In 1986, Labour politician Roy Jenkins famously said: “Inheritance tax is broadly speaking a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue.” His point was that there are a number of ways to reduce, or eliminate altogether, your inheritance tax liability. Some, but by no means all, of these include:

Inheritance tax accounts

An inheritance tax account is very much like a bank account in that you have access to your money at short notice. However, after two years the funds held in the account will be inheritance tax free.


If you’ve accumulated large ISA pots, you risk leaving behind a large inheritance tax bill when you die. That’s because your ISA investments are free from capital gains tax, but they are treated as part of your taxable estate after you die.

AIM ISAs address this problem. The investments are carefully selected companies listed on the Alternative Investment Market (AIM). Investments are expected to qualify for business property relief, meaning they would become free from inheritance tax after just two years.

They offer a fast and flexible solution to inheritance tax planning, allowing investors to retain control of and access to their money, while delivering inheritance tax relief after just two years (provided the investments are still held at the time of death) and also taking advantage of the tax benefits of an ISA wrapper.

You can make a cash subscription using this tax year’s current ISA allowance (£20,000) and/or transfer your existing ISAs. You also have the option to withdraw money if you need it in future years.

Trust funds

Gifting assets to trust is usually a one way street i.e. you cannot have the fund back. It is free from IHT in seven years and can be held in trusts as shares and investment bonds etc.

Trust Matters reversionary settlement

This is a new and exciting financial planning solution which is tailored to your circumstances and needs. It is a flexible trust that not only helps to reduce inheritance tax, but also allows you to retain the ability to access your capital.

Why is making a will important?

Having a correctly structured will can help minimise inheritance tax by ensuring your assets are passed to your designated beneficiaries in a tax efficient manner. The disposition of a person’s estate after death is governed primarily by the person’s will or, if no valid will exists, by the laws of intestacy.

Who can help with reducing my inheritance tax burden?

Financial advisers who specialise in inheritance tax planning, such as Hertfordshire-based business Trust Matters. The company pride themselves on building life-long relationships with clients and can offer professional advice on the best investments and help with estate planning.

Find out more

Trust Matters will be holding a boardroom briefing event on February 28, where you can find out more about reducing the amount of inheritance tax your loved ones will pay.

Richard Power, head of smaller companies at Octopus Investments, will be discussing his AIM portfolios at the event. Attendees will also have the chance to hear his thoughts on the effects of Brexit in regards to financial investments and the wider economy.

This exclusive event will take place at their St. Alban’s office at Hill House, 5 Holywell Hill.

For more information, or to book your place at the boardroom briefing event, email info or call the St. Albans office on 01727 737 610.

Trust Matters Group is a trading style of Trust Matters Financial Services Ltd which is authorised and regulated by the Financial Conduct Authority. This article does not constitute advice and is for information purposes only. Trust Matters is happy to offer advice for clients on these products although charges may be applied.

AIM shares are generally considered to be higher risk than some other investments. Investments are subject to financial markets and can fall or rise in value. IHT benefits are lost if the product is encashed before death. Sufficient funds should be retained in non IHT protected assets to allow withdrawals to be made without loss of benefits should encashment be necessary.