Your bucket list (with a twist)
First published 16 August 2016 • Updated 25 July 2017
Do you have a list of things to do before you die? Then spare a thought for the ones who stand to inherit your worldly goods. If you don’t want them landed with a hefty inheritance tax bill, make sure you include these gems of wisdom in your bucket.
- Get married!
You can’t stay young, free and single all your life. It’s true that many couples live together for decades and never see the point of marriage. But there’s a very big point: if one married spouse dies, the other is exempt from inheritance tax (IHT). If the partners aren’t married, then IHT is payable. Better a cheap wedding than a very costly tax bill.
- Make a will
In the point above, we assume you’ve made a will. If you haven’t, and you’re not married or in a civil partnership, then your partner won’t automatically inherit anything from you. The fact that they won’t face any IHT either… is not much consolation.
- Swim with dolphins
Yes, everyone loves these super-intelligent creatures… but as bright as they are, they can’t give you very good advice on IHT planning. So talk to an independent financial adviser too.
- Donate to charity
There’s great personal satisfaction in giving to those less fortunate. And each gift also reduces the size of your taxable estate, so every £100 you give will cost your beneficiaries only £60. Furthermore, if you leave at least 10 per cent of your net estate to charity, your IHT bill on the remainder drops from 40 per cent to 36 per cent.
- Treat your family and friends
You can also make gifts of money and other assets to family members and friends to reduce the size of your taxable estate. Gifts over £3,000 made in a single year are called potentially exempt transfers (PETs), because they are only exempt from IHT if you live for seven years or more after making them. Smaller gifts are usually exempt anyway (see the HMRC website for more details).
- Climb Mount Kilimanjaro
Well, you want to stay fit if you’re going to live those seven years and more. A trip of a lifetime can be expensive, but here’s a tip: try to pay for it out of your savings rather than your pension. This is because your savings are vulnerable to IHT, but your pension isn’t.
- Walk your daughter up the aisle
Of course you may not have a daughter. But what could be better than seeing your own child get married? Especially as you can make a wedding gift to them of up to £5,000 that will be free of IHT. Wedding gifts to grandchildren are exempt up to £2,500.
- Set up a trust
By putting cash, property or investments into trust, you put them outside your taxable estate. If neither you nor your spouse nor any children under the age of 18 can benefit from the assets held in trust, then the assets should be exempt from IHT when you die. However, the rules governing trusts are complex, so make sure you seek advice.
- Take out life insurance to pay into a trust
A life insurance policy can protect your loved ones when you are gone – for instance, it may mean they don’t have to sell the family home. To ensure this, you need to set up the policy so that the payout goes into a trust, or else the payout will form part of your estate and be taxable. This is another area where advice is essential.
- Do a bungee jump
It can really help to discuss your own inheritance tax situation in person. You can find a local financial adviser here.