Four reasons why advisers should think about inheritance tax for their clients

Tony Sime - Sales Director

Tony Sime

27 June 2019

Tony Sime, Sales Director, Downing LLP- Any personal opinions expressed are subject to change and should not be interpreted as investment advice or a recommendation.

 1. A growing number of people are falling subject to IHT unexpectedly

The amount of inheritance tax (IHT) receipts, that’s the amount paid to the government in inheritance tax, continues to climb year-on-year, hitting £5.4 billion during the 2018/19 tax year. And in March 2019, IHT receipts jumped by a remarkable 44.4%, compared to the previous month.

There are several ostensible reasons for these sharp increases but the one that may surprise you the most in today’s modern world, is that some parents still aren’t talking to their adult offspring about their family wealth. 

I regularly come across scenarios where sons and daughters aren’t discovering the extent of their parent’s wealth until fairly late in their lives. It seems that the very British – and well intentioned - tradition of keeping your financial affairs extremely private still stands. But this can lead to all kinds of issues for sons/daughters who may only discover this when it’s too late and they are faced with a large IHT bill upon their parents’ death. Even if they find out before then, either or both the parents and their offspring may still have a big job on their hands to help mitigate IHT, particularly if the parent in question is in poor mental or physical health.

 2. Keep an eye on the value of your property & other assets

 In April 2017, a new residence nil rate band (RNRB) was introduced in addition to an individual’s own nil rate band of £325,000, which initially led many to think that less people would be liable to IHT.


How the RNRB works Having been set initially at £100,000 per person in 2017, the RNRB has increased by £25,000 each year and will eventually be capped at £175,000 in 2020/21.Thereafter, it will increase in line with the Consumer Price Index (CPI). This means that by 2020/21, families can protect up to £1 million of their wealth from IHT, provided certain conditions are satisfied (see reference 3 for source).

An important note that the RNRB only applies when someone is passing on their main residence to direct descendants such as children or grandchildren.   


So far, so good? Not necessarily, because the price of assets, whether it’s property or investment portfolios, have largely continued to grow in value too, which has pushed many unsuspecting people over this £1 million threshold. People living in areas that have experienced significant house price rises in recent years should be careful.

However, if you are fortunate enough to have an estate worth more than  £2 million the RNRB will be subject to a taper; for every £2 above £2 million, the RNRB will be reduced by £1. This means that joint estates worth £2.7 million and over will not benefit from the RNRB

 3. Different rules may apply

Different sets of rules for IHT may apply to you and your loved ones. The standard 40% rate on anything above the £325,000 threshold will automatically apply for people who are single or unmarried. Making a will is particularly important for anyone in this position, as a way of ensuring that their estate is passed on in line with their wishes and help guarantee that their beneficiaries don’t pay more IHT than they need to.

By contrast, if one partner in a married couple or civil partnership passes away, their entire estate can be transferred to their spouse without being liable for IHT. And the unused balanced on their nil-rate band is also passed on to their spouse.

 4. Don’t put off planning

Talking about plans for passing your money on, whether it’s with your partner, family or financial adviser, doesn’t always feel like the easiest conversation to have. And some of the big questions – what if I need my money back? What if I gift my money and my daughter and son-in-law divorce? ‘What if I change my mind?’ – can make some people particularly hesitant to make decisions about if and how to pass on their estate. But delaying plans could lose you vital time, particularly as some forms of IHT relief can take years to kick in.

Gifting some of your assets to a loved one or putting them into a trust - two of the most traditional ways to mitigate IHT – can take up to seven years to qualify for the tax relief. Business Relief investments, often available through estate planning services, become exempt from IHT after two years.

It’s crucial to consider all of these options against your personal circumstances before deciding which route to take and it is also possible to blend these different strategies, to help meet the needs of you and your loved ones while also spreading risk across different investments.


This article is for information purposes, should not be regarded as investment or taxation advice and no reliance should be placed upon it. Capital is at risk and you may not get back the full amount invested. Tax treatment depends on the individual circumstances of each investor and may be subject to change. The availability of tax reliefs depends on investee companies maintaining their qualifying status. Investments in smaller companies will normally involve greater risk or volatility than investments in larger, more established companies. Downing LLP is authorised and regulated by the Financial Conduct Authority (Firm Reference Number 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD.