7 ways to make sure your money is left to your loved ones, not the Taxman

7 ways to make sure your money is left to your loved ones, not the Taxman

Estate planning and Inheritance Tax isn’t often a topic of conversation, but when you find out that, according to unbiased.co.uk research ,we’re set to pay more than half a billion pounds of inheritance tax to the Treasury – completely unnecessarily, it certainly grabs our attention.

Naturally, we all want to make sure that our loved ones inherit as much as possible after we’re gone and that they aren’t saddled with a large Inheritance Tax bill. So with this in mind, Foresters Friendly Society has taken a closer look at a few simple changes you can make which can help to avoid a hefty inheritance tax bill.

Firstly, what do you need to know about Inheritance Tax (IHT)?

  • IHT is payable on everything in your estate above the tax free allowance – the amount up to which there is no IHT to pay.
  • For an individual, this tax free allowance is currently £325,000.
  • As your estate includes assets such as property, money, investments, insurances and valuables, as well as any jointly owned assets, you’ll be surprised how easy it can be for you to break through the tax-free allowance barrier.
  • IHT is charged at the rate of 40%, so for example, an estate worth £500,000 would generate a 40% IHT bill of £70,000.

And how can you reduce your IHT Bill?

Ringfence your life insurance

Unbiased.co.uk’s startling statistic – that £530 billion will be wasted this year – is largely because individuals have not put their life insurance policy ‘in trust’ (also know as a policy ‘written in trust’).

This effectively means that by putting your policy in a trust it will benefit a specified person, or people (known as the beneficiaries) and it is not included as part of your estate. For that reason, it will not be included when IHT is calculated.

Nominating a beneficiary is actually quite easy to do and you can contact your life insurance provider for the paperwork.

Leaving it to your spouse

Everything you leave to a husband, wife or civil partner who has their permanent home in the UK is exempt from IHT. In addition, married couples and civil partners can transfer their unused tax free inheritance tax allowance, so the surviving spouse’s nil rate band is increased by any their partner didn’t use. Effectively, this could double the amount that remains free from IHT to up to £650,000.


Every tax year, you can give away gifts, including money, worth up to a total of £3,000 and you can also carry forward any of the leftover £3,000 allowance from the previous year to the next year, up to a maximum allowance of £6,000.

You can also give away small gifts worth up to £250 to as many people as you like in any one tax year, however you cannot combine a £250 gift with any other exemption when gifting to the same person.

A generous wedding present

A parent can reduce the size of their estate and give a couple a head start in their new married life at the same time by giving cash or gifts worth up to £5,000 to the newly weds. Grandparents can give up to £2,500 and anyone else up to £1,000.

Regular donations

If you give away a regular gift out of your after-tax income, rather than from your savings and investments, which doesn’t affect your lifestyle, this can be immediately outside your estate too. This exemption is often overlooked but could potentially allow you to give away a reasonable amount of your income to your family through a regular allowance.

Inherited ISA allowance

ISA investments are treated like any other aspect of your estate when you pass away, meaning that they lose their tax-free status when passed to beneficiaries named in your Will and are subject to IHT. However new rules introduced by the government now enable your husband, wife or civil partner to inherit an additional tax-free ISA allowance up to the value of the savings in your ISA account when you pass away.

Decide which good cause gets your money

Rather than your hard-earned savings going to the taxman, you could choose to donate them to your favourite cause – this can be done while you are alive, or in your Will.

Donations of any value that you give to charities, national institutions such as museums, universities and the National Trust or to a UK political party, with at least two MPs, are outside your estate as they are treated as an exempt gift.

If 10% or more of the estate is left to charity, Inheritance Tax can be paid at a reduced rate of 36% on some assets (instead of 40%).

Make it as easy as possible for those left behind

Documenting everything you do, especially when you’re making gifts, will make it so much easier for your executors to claim any exemptions they can.

It’s also so important to have a valid Will in place. This could reduce the amount of IHT you pay if your spouse is a beneficiary, or if you leave an exempt gift as specified above – but even if it doesn’t, it will ensure your estate is divided in accordance with your wishes, rather than the rules of intestacy.

How will IHT be changing?

The tax-free threshold has been frozen since 2009, however Chancellor George Osborne’s July 2015 budget announced that the £325,000 allowance will gradually increase to £500,000 per person.

The Government will add a “family home allowance”, eventually worth £175,000 per person, to the existing £325,000 tax free allowance from 6th April 2017.

This will be worth £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20, and £175,000 in 2020-21. This will allow individuals to pass on assets worth up to £500,000, including a family home, without paying any IHT at all. For married couples and civil partners, the total will be £1m.

How Foresters Friendly Society can help

The Foresters Friendly Society 50+ Life Cover policy provides a cash lump sum after you’re gone to provide support for your loved ones at a difficult time, whether to help with funeral costs, unexpected bills or to leave a legacy for a loved one.

When you apply for a Foresters Friendly Society Over 50s Life Cover policy, you can name a beneficiary who will receive the value of your policy, up to £5,000, immediately following your death. This can be done without having to wait for your estate to be administered, which can often be a lengthy process at a difficult time.

Foresters Friendly Society also offer a Stocks & Shares Inherited ISA Allowance Plan which accepts contributions as part of an ISA allowance which has been inherited by a deceased’s Spouse or Civil Partner.

Forresters LogoTo find out more, please contact Foresters Friendly Society on 0800 988 2418 or at memberservices@forestersfriendlysociety.co.uk

This blog is based on Foresters Friendly Society’s understanding of inheritance tax and is intended to provide basic information, not financial or tax advice, to help you make an informed decision when planning for the future.   Foresters Friendly Society do not offer financial advice. You should contact a professional adviser, who may charge a fee, if you want financial or inheritance tax advice.

Please note:

  • Tax rules may change in the future and will depend on your individual circumstances.
  • The information and amounts contained in this article are correct as at 01/07/2015.
  • When you die the cash sum that is paid out from your Foresters Friendly Society 50+ Life Cover policy may not cover what you intended for it. This is because the price of things can change over time and inflation will reduce what can be bought with the lump sum.
  • Foresters Friendly Society 50+ Life Cover policy is not a savings or funeral plan – there is no guarantee that the amount received would cover the costs of a funeral.