Article is provided by Lauren Peters, Financial Adviser, Fiducia Wealth Management, November 2019.

As a financial adviser, I discuss Inheritance Tax regularly with my clients. A few shrug their shoulders and say, “I’ll be dead; I don’t care” but most feel very strongly that it’s a tax against assets you’ve already paid tax on. Both views are valid, but there’s good news for the second group in that there are plenty of ways to reduce or even eliminate it… as long as you start planning early enough.

So, what exactly is it? Inheritance Tax is a tax levied against a person’s Estate on death. Once any allowances are used up, Inheritance Tax is charged at 40% on the rest. Yes, 40%! The Tax Man gets a very big slice.

Many people also don’t realise that Inheritance Tax must be paid by the executor of the deceased’s Will before the Estate is released to any beneficiaries. This can cause major problems if there is a large bill to pay. It’s not unusual for executors to have to take out short term bank loans to pay the Inheritance Tax in order to release the Estate to the beneficiaries.

Everyone has an allowance against Inheritance Tax – called the Nil Rate Band – of £325,000. There is also a Residence Nil Rate Band, which is an allowance applied when you pass on properly to children or grandchildren. This allowance is currently £150,000, increasing to £175,000 from 6 April 2020.

So, from 6 April 2020, many people will be able to pass on up to £500k before paying Inheritance Tax. But be aware, the Residence Nil Rate Band starts to be reduced if your Estate exceeds £2m. Plus, if you don’t have children or grandchildren to bequeath property to, you can’t use it at all.

If you are married or in a civil partnership, it’s worth knowing that you can pass all of your Estate to your other half without Inheritance Tax being due. If you do this, they can inherit your Nil Rate Band and Residence Nil Rate Band and use these allowances against the total Estate on their death. So, from 6 April 2020, a married couple could potentially pass on an Estate worth £1m before tax is due, when the second person dies.It sounds like a lot, but property values can easily take up half of this allowance in many parts of the country.

Should you worry about Inheritance Tax? It’s a personal thing, but if you think your Estate is likely to exceed your available allowances, it’s worth having a chat with a financial adviser to discuss. In some cases, the Tax Man could be as big a beneficiary of your worldly assets as your children! Plus, the rules can and do change from time to time. With an appraisal of your situation, it’s quite possible there are some simple things you can do now in order to protect your Estate from Inheritance Tax and pass on more to the people you love.