How to ensure you NEVER have to pay inheritance tax, by experienced estate planner IAN DYALL

Unless you are fabulously wealthy, there is no reason why you should ever have to pay inheritance tax. You are free to give away as much wealth as you want completely tax-free, as long as you do it during your lifetime and survive another seven years.

And if you – understandably – don’t want to hand everything over, there are plenty of allowances that allow you to hold on to significant amounts of money and still not lump your loved ones with an inheritance tax bill when you die.

I’ve worked in the financial services industry for 34 years, and the main reason grieving families pay inheritance taxes is not because of complicated rules or dealing with large amounts of wealth. No – they are emotional problems.

I see the same pattern in families over and over again. People are so often plagued by psychological worries that can have a major impact on their finances.

Roy Jenkins, a Labor chancellor in the late 1960s, famously described inheritance tax as “a voluntary levy paid by those who distrust their heirs more than they dislike the tax authorities.”

While there are obvious exceptions to this, Roy was definitely on to something. I hear the same concerns over and over again.

What happens if I give my money to my adult daughter, who then gets divorced, and it goes to my horrible son-in-law? What happens if my children waste my hard-earned money on frivolous purchases, such expensive vacations and watches?

Can I really trust my 40-year-old son with a large sum of cash – after all, he is the same person who wrapped his car around a tree without insurance at age 18?

What happens if I give my money to my children and they put it into their business and the business goes bankrupt?

Sometimes people leave their loved ones with an avoidable inheritance bill because they simply didn’t want to think about death – or thought they had even longer to live than before.

A couple I knew refused to write a will because they feared it would tempt fate.

But inheritance taxes are a problem that more and more people cannot ignore.

The growth in asset values, coupled with the fact that the zero interest rate, which has remained unchanged at £325,000 since 2009, will remain frozen until at least April 2028, means that many more estates of relatively modest size are included in inheritance tax each year.

Married couples and people in a civil partnership can combine their benefits to jointly pass on £650,000 tax-free. They can also pass wealth to each other tax-free.

Anything above these allowances is taxed at a flat rate of 40 per cent, although there is an additional charge for passing on a family home worth less than £2 million.

You also do not have to pay inheritance tax on donations from regular, surplus income.

But even if you have assets in excess of your benefits during your lifetime, most tax bills can be avoided or reduced with some careful estate planning steps.

One of the most common problems – and the most difficult to overcome – is the fear that you will run out of money if you give away a large chunk of it to family during your lifetime.

This is a legitimate concern, and one that we as financial planners take very seriously in our planning.

But it’s amazing that even ultra-wealthy people worry about this, when, honestly, you can look at their assets without any complicated math and see that they will never run out of money – even if they need expensive care.

Spending and enjoying the money you’ve earned can improve your quality of life and lower the tax bill on what’s left when you die.

There are clever tricks we can use to take the money out of your estate and reserve it for your children, but still ensure you have access to it if you ever need it. For example, you can leave an inheritance in a trust, which in some cases allows you to retain some access to the money you’ve given away while minimizing the inheritance tax liability.

If you want to use a trust so you can keep access if you need it, you can only go to the nil rate – so £325,000 (or £650,000 for a couple who are married or in a civil partnership) in each case. period of seven years. If you have a large estate, or want to put your house into it, it may be wise to start early in the hope that you have a number of seven-year periods ahead of you.

However, you may not need trust. In many cases I see that a desire to maintain control that is not necessary leads people to use trust relationships and therefore slow down the process. There may be another tax

However, the consequences you need to consider, and as this is a generally complex area, it is best to arrange trusts with estate planners, rather than yourself.

People often worry about giving up control of their wealth. They have worked hard all their lives and seen their net worth increase, so the idea of ​​passing it on to the next generation can be difficult to understand.

Sometimes it’s important to put this aside and think carefully about when your children will benefit more from your hard-earned money.

Is it while they’re trying to get into the housing market in their twenties, while they’re raising kids or sending those kids to college? Or is it when you pass away and they recently retired?

People who are very wealthy sometimes do not want to transfer their wealth to their children all at once while they are young adults because they fear that this could take the ambition and drive out of their lives. It’s true that too much money can cause damage too quickly, but sooner or later they’re going to get it anyway.

It’s worth giving children some money early on so they can see how they handle it and get used to it.

For example, if you buy them a house or give them enough as a deposit, they still need a job to support their lifestyle.

Sadly, I see cases of this every week where people hold on to their money until they become unwell, and then it can become too late to transfer wealth without the risk of an inheritance tax bill.

There’s no hard and fast rule, but you should start the process when you retire, which for most people is in your mid-60s. You don’t have to take huge steps, but start thinking about it.

For example, you can start thinking about what you spend and what you keep.

Pensions do not count towards your estate and therefore do not incur inheritance tax. So it can be a better vehicle for transferring assets than anything else. This means there may be better ways to fund your retirement while preserving your pension.

There are rumors that the Chancellor will make pensions taxable for inheritance tax in the upcoming budget. If that happens, is it really a disaster?

Well, now you have a retained pension that you can use later, so it is there when you need care. After all, you can only plan based on what you know.

Try to put your emotions aside – or understand that your psychological problems could cost you in the long run.

As told to Jessica Beard

Ian Dyall specializes in trusts, estate planning and inheritance tax. He works at asset manager Evelyn Partners.