Strategic Inheritance Tax Planning for Estates Exceeding £2 Million

For individuals with estates surpassing the £2 million-mark, effective inheritance tax (IHT) planning becomes paramount. This financial threshold introduces unique challenges requiring strategic approaches to mitigate tax liabilities and safeguard wealth for future generations.

Understanding IHT Thresholds

IHT is applied to the value of an individual's estate upon their death, subject to certain exemptions and allowances. While the standard nil rate band is £325,000 per person, estates worth over £2 million face additional considerations.

Tapering of the Residence Nil Rate Band

Estates valued over £2 million face a tapering of the nil rate band. For every £2 over the threshold, £1 of the residence nil rate band is eroded. Consequently, as estate values rise, the available residence nil rate band diminishes, potentially resulting in heightened IHT liabilities.

Strategic Tax Planning Approaches

To mitigate the impact of IHT on these sizable estates, it is possible to explore various strategic tax planning approaches:

Lifetime Gifting: Making gifts during your lifetime can effectively reduce the estate's value for IHT purposes. Leveraging annual gift exemptions, small gifts exemptions, and potentially exempt transfers can contribute to lowering tax liabilities.

Utilisation of Trusts: Trusts serve as a versatile tool for managing and distributing assets while minimising IHT liabilities. By establishing trusts within your estate planning, you can protect assets, provide for beneficiaries, and potentially reduce the overall tax burden.

IHT-free ISAs: It is possible to invest in companies that qualify for Business Property Relief within an ISA wrapper. These investments are exempt from your estate after 2 years provided they still meet the requirements of the relief.

Regular Review and Adaptation

Estate planning is a dynamic process that necessitates ongoing review and adaptation, which is a service we excel in. Individuals with estates valued over £2 million should routinely assess their planning arrangements to ensure effectiveness in response to evolving circumstances, tax legislation, and personal objectives.

Please get in touch for a complimentary inheritance and estate planning review with one of our expert advisers to ensure you have a solid plan for your estate. We can talk through strategies to structure your estate to protect your assets for your loved ones. Call 0117 3636 212 or email office@haroldstephens.co.uk.