Inheritance tax – how to be prepared

It is natural to want to pass on your estate to your children when the end comes but having to pay inheritance tax (IHT) can drastically reduce the amount of your estate which ends up with your family. In 2018/19 HMRC was paid a whopping £5.3bn through inheritance tax*.

In this blog the Generation Wealth Management experts look at what can be done to help you ensure you are able to keep hold of the right amount of your estate.

The first step would be to work out what your potential inheritance tax bill could be. There are numerous calculators available to work this out, a simple one can be found here. This will quickly and easily work out your potential worst-case scenario.

Inheritance tax – our top tips

Make a current will

Making a will is an important part of estate planning. Without a current your assets will be distributed according to intestacy rules. If you have specific ideas about who you would like to inherit which assets then you should think about writing a will. Forethought when writing a will can help to open your eyes to your potential inheritance tax bill.

There is no tax paid on assets inherited between spouses, but all assets not left to a husband/wife will be liable.

Be aware of the inheritance tax threshold

The inheritance tax nil-rate band – or the inheritance tax threshold as it is also known – for individuals is £325,000. This nil-rate band is transferable to a spouse or civil partner upon their death, equating to a total nil-rate band allowance of £650,000 for couples.

There is also an additional main residence transferable allowance of £175,000 which can in some instances allow individuals to avoid inheritance tax on property.

Could you gift your assets?

If you are in a position to give your assets away – and you live for a further seven years – then those gifts remain free from inheritance tax. Each year you are also able to give inheritance tax exempt gifts totalling £3,000. In the event of your child getting married you can also give £5,000 as a wedding gift, safe in the knowledge that it is free from inheritance tax. If you are able to gift your wealth this can be a useful way to limit the impact of inheritance tax upon your death.

Put your assets into trust

Assets left in trust do not form part of your estate and are exempt from inheritance tax, although the seven year rule still applies, so assets must be in trust for seven years before they become exempt from inheritance tax. Assets can be placed in a trust for children or grandchildren once they come of age.

Retain the income from your assets in trust

If you take advantage of an ‘interest in possession trust’, you can still retain the income from the assets held in trust, whilst avoiding the inheritance tax implications.

Leave money to charity

Any money left to a charitable organisation will be free from inheritance tax.

Spend it

You worked long and hard to build up your assets and should ensure you enjoy them to the full. Many people sacrifice their retirement to leave money to their families, only for them to be taxed 40% for the privilege.

If this has opened your eyes and you would like to get a clearer picture of what inheritance tax will mean for those you leave behind, speak to one of our experts.

N.B The information in this blog is based upon our understanding of tax legislation and rules in April 2021. These may be subject to change in the future. The benefits of any planning will depend upon your financial circumstances”.

* • Inheritance tax receipts UK 2020 | Statista



The circumstances surrounding the 2021 Budget are nothing short of extraordinary. The challenges businesses and individuals have faced in recent months are unprecedented but – thankfully – the Chancellors Budget contained no major shocks.

This pandemic has a rather different dynamic compared to other economic downturns which the Government have tackled before. Normally the Government would tighten its belt, but in this instance Government measures are being relied upon to support the economy and hold it back from complete collapse. The repeated lockdowns have pushed Government spending to exceptional levels – unseen outside of wartime – the announced extension of this Covid-19 support until September will increase the scale of this spending further.

The question we are asking here at Generation Financial Services, is whether the measures announced by the Chancellor will be enough to sustain the UK’s economic and financial market recovery. The below gives a short rundown of the Budget.

Income tax

The Chancellor announced that the government will increase the Personal Allowance to £12,570 and the basic rate limit to £37,700. The higher rate threshold (the Personal Allowance added to the basic rate limit) will increase to £50,270 for 2021 to 2022.

The forthcoming changes to the Personal Allowance will apply to the whole of the UK. However, changes to both the basic rate limit and the higher rate threshold, will apply to non-savings, non-dividend income in England, Wales and Northern Ireland, and to savings and dividends income in the UK. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament, not the UK Government.

Capital Gains Tax

The Capital Gains Tax annual exempt amount will remain at £12,300 for individuals, personal representatives and some types of trusts for disabled people and £6,150 for trustees of most settlements for the tax years until 2025 to 2026.

Inheritance tax

  • Nil-rate band to remain at £325,000
  • Residence nil-rate band to remain at £175,000
  • The residence nil-rate band taper will continue to start at £2 million

In short this means that qualifying estates can continue to pass on up to £500,000 with the qualifying estate of a surviving spouse or civil partner being able to pass on up to £1 million without an inheritance tax liability.

Corporation tax

The Government have introduced a small profits rate of 19% for financial year April 2023. The small profits rate will apply to profits of £50,000 or less.


  • The adult ISA annual subscription limit will remain unchanged at £20,000
  • The annual subscription limit for Junior ISAs will remain unchanged at £9,000
  • The annual subscription limit for Child Trust Funds will remain unchanged at £9,000
  • A new Green National Savings and Investment product is to launch, providing savers with an opportunity to invest in an environmentally conscious manner

State pension

The state pension will increase by 2.5% from 6 April 2021. For State pension recipients, who are entitled to the full level of new single-tier state pension their payments will increase by £4.40 per week from 6 April 2021.

Lifetime pension allowance

The pensions lifetime allowance has been frozen at £1,073,100 until April 2026. This doesn’t stop you savings, you can still save as much as you want to in your pension during your working life – but if it exceeds a total amount (the lifetime allowance), you could face a tax charge when you come to access this money.

If you would like to know what these changes mean for your personal savings and investments, get in touch with one of our experts.