Common myths about Inheritance Tax planning

Tatiana Zenina

Article written by Tatiana Zenina, Private Client Solicitor

Inheritance Tax (IHT) planning is a vital component of financial planning, but it frequently becomes obscured by misconceptions and myths. As the New Year begins, there is an opportunity to unravel some of the common misunderstandings and shed light on the realities of effective IHT planning. In this article, we will address and dispel some of the prevalent myths surrounding IHT, providing clarity for individuals and families seeking to secure their financial legacies.

Myth 1: IHT only affects the wealthy

One of the most persistent myths is that  IHT is only a concern for the wealthy. In reality, the threshold for inheritance tax is applicable to a broader range of estates. Understanding the current thresholds and exemptions is essential for effective tax planning, regardless of the size of your estate.

Myth 2: giving away assets automatically reduces IHT

While gifting assets can be a legitimate strategy for reducing IHT, it’s not a one-size-fits-all solution. The timing and nature of gifts, as well as the relationship between the giver and receiver, can impact their tax implications. It’s crucial to seek professional advice to navigate the complexities of gifting and ensure compliance with tax regulations.

Myth 3: a Will alone is sufficient for IHT Planning

A well-crafted Will is undoubtedly a cornerstone of  IHT planning, but it’s not the sole solution. There are various strategies, such as trusts and lifetime gifts, that can complement your Will and enhance your overall tax planning. A comprehensive approach that considers all available options is essential for maximising tax efficiency.

Myth 4: IHT can be avoided entirely

While there are legal ways to minimise the impact of IHT, completely avoiding it is a misconception. IHT is a legitimate tax levied on the transfer of assets, and attempting to evade it through questionable means can lead to serious legal consequences. It is essential to focus on lawful strategies to manage, rather than entirely eliminate, the tax burden.

Myth 5: IHT planning is a one-time activity

IHT planning should be viewed as an ongoing process, not a one-time event. Changes in personal circumstances, tax laws, and financial landscapes may necessitate adjustments to your IHT strategy. Regular reviews and updates are critical to ensuring that your plan remains effective and compliant with the latest regulations.

Myth 6: IHT planning is only about property

While property is a significant consideration in IHT planning, it’s not the sole focus. Other assets such as investments, savings, and personal belongings are also subject to IHT. A holistic approach that considers all aspects of your estate is crucial for developing a comprehensive tax strategy.

As you embark on IHT planning in 2024, it is essential to separate fact from fiction. Dispelling common myths surrounding IHT allows for a more informed and effective approach to securing your financial legacy. Consult with legal and financial professionals to develop a personalised and legally sound inheritance tax plan that aligns with your unique circumstances and goals.

To discuss the content of this article further or for advice on a particular private client legal matter, please feel free to email me or contact the team on 020 8858 6971.