Inheritance tax planning (for UK domiciled individuals only)

Protecting your inheritance

UK Inheritance Tax (IHT) is a tax charged on a UK domicile's estate when they die. It can also apply to certain gifts you might have made during your lifetime. Exactly who will be liable for IHT is a complicated matter but, in very general terms, it will apply to those living in the UK at the time of death, and some who have previously lived in the UK.

IHT is currently charged at a rate of 40% on the value of your estate which is above the nil-rate band threshold (frozen at £325,000 until 2021).

Your estate is basically everything you own in your name or your share of everything you own jointly. It includes your main property, any additional property, cars, boats, life assurance policies, any investments, any personal effects such as jewellery, any assets held in trust which you can benefit from, and any gifts made where you keep back some benefit (gifts with reservation).

Planning to mitigate IHT

A financial adviser can help you explore a number of potential ways of mitigating any IHT liability. One way is to make use of any appropriate IHT exemption: annual exemption, normal expenditure, small gifts, gifts to charities, to name but a few.

There are also a number of IHT mitigation schemes available from Old Mutual International which have stood the test of time. Below is a brief summary of three such examples which use trusts.

The Loan Trust

The loan trust is an investment whereby you loan a lump sum to your appointed Trustees. This allows you (the settlor) access to the value of the outstanding loan whilst any growth on that sum is immediately outside your estate.

The Discounted Dift Trust (DGT)

This is a scheme which allows you as the settlor to make a lump sum gift to your chosen beneficiaries, whilst retaining a right to receive regular withdrawals during your lifetime.

One of the key differences between the DGT and the loan trust is that, with the DGT, you are unable to demand the full capital at any time but instead have an entitlement to regular withdrawals which are fixed at outset.

Lifestyle Trust

Similar to the DGT, the Lifestyle Trust also allows you as the settlor to make a lump sum gift to your chosen beneficiaries. What makes the Lifestyle Trust unique is that it entitles you to access a pre-agreed proportion of the trust fund for your own future use.

IHT is a curious tax as its impact for most will only become clear after their death. However, with careful planning and an adviser who is offering the full spectrum of financial planning, there are ways to lessen its impact.

We offer a full range of trust solutions to help you and your financial adviser with your IHT planning. In addition to this, we also offer a professional trustee service through Old Mutual International Trust Company. Please speak to your financial adviser for more information.

For a better understanding of trusts and to watch a video, click here.


The information provided on this page is not intended to offer advice. It is based on Old Mutual International's interpretation of the relevant law and is correct at the time of publication. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual International cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained on this page.

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