MANY people think it is deeply unfair that the estate they have worked so hard to build up can potentially be subject to a 40 per cent tax charge.

Fortunately, there are lots of exemptions that can help mitigate the tax paid.

Regrettably, many families fail to take full advantage of what is on offer.

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Whenever someone dies the value of their estate becomes liable for IHT.

Your estate includes everything you own, including your home and certain trusts in which you may have an interest.

However, everyone is entitled to pass on assets of up to £325,000 IHT free.

This is called the nil-rate band.

Married couples and registered civil partners can share their thresholds, transferring the unused element of their IHT-free allowance to their living spouse when they die.

Doubling up the relief means a married couple or registered civil partnership have a joint nil-rate band of £650,000.

On top of the nil-rate bands there are a range of reliefs and exemptions that with careful planning can be used to reduce an IHT bill.

The former home secretary, Lord Jenkins of Hillhead, called IHT “a voluntary tax, paid by those who distrust their heirs more than they dislike the Inland Revenue.”

However, research Brewin Dolphin conducted (with Opinium) suggests many families' failure to plan for IHT is more a matter of reticence than distrust.

Think “will”

Before you move on to any other forms of estate planning it is essential that you have an up-to-date will.

Making a will is one of the most important things you can do to ensure your estate goes to who you want and that your wishes are carried out.

Lifetime gifts

Most people wait until death before passing on their wealth through their wills.

However, it can be more tax-efficient for IHT purposes to gift money while you are still alive.

Transferring wealth while you are alive can have a transformative effect on both your and your family’s life.

Consider how you own your home

Typically couples own their home as joint tenants.

This works for many couples, but for some it makes more sense to be tenants in common.

This enables each partner to pass on a share of their home on death to someone other than their spouse – their children, for instance.

Make use of pensions

If you pass away before the age of 75, benefits left in a money purchase pension can be paid as a lump sum or drawdown income to any beneficiary, this means you can pass your pension on to your children, and then they can pass it on to their children, raising the prospect of pension money cascading down the generations.

Take control with trusts

Trusts can reduce an IHT bill and give you control over how your assets are used by future generations.

Don’t forget life assurance

Life assurance can be used to either meet, or reduce a prospective IHT bill. As long as the policy is written in trust, when you die the policy pays out to the trust which pays all or part of the inheritance tax bill.

Think about discounted gift trusts

The trust purchases an investment bond, which provides a tax-efficient income of up to five per cent until your death. If you survive for seven years, the bond does not count as part of your estate.

How we can help you

Estate planning is a complex area that is subject to regular regulatory change. But, our financial planners can help you create a succession plan best suited to your family’s circumstances.

Our planners can work with you to establish what you want to do with your money now and what you might need in the future, for example, to cover care needs in later life.

Once you have clarity about what you require, you can establish how much wealth is left to pass on to future generations.

Neil McLoram works in business development at wealth management firm Brewin Dolphin, based in Newcastle.

The opinions expressed in this article are not necessarily the views held throughout Brewin Dolphin. No director, representative or employee of Brewin Dolphin accepts liability for any direct or consequential loss arising from the use of this document or its contents. Any tax allowances or thresholds mentioned are based on personal circumstances and current legislation which is subject to change. The information contained in the text is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. The value of investments can fall and you may get back less than you invested. The information is for illustrative purposes only and is not intended as investment advice.