Benjamin Franklin famously said ‘Our new Constitution is now established and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes’.

Whilst this is true, effective planning can help reduce the level of tax paid on death.

We recently come across a case where on the death of an elderly relative one of our clients is due some inheritance. Probate has been completed and the estate was over the available nil-rate bands, so not an inconsiderable amount of inheritance tax has been paid.

On looking deeper into the situation and trying to work out the best way forward, it has been upsetting to see how with some simple changes to the planning, the tax position both during life and now could have been reduced.

The deceased was sadly in care for the final few years of his life and to pay for care he made withdrawals from his pension.  This incurred income tax and left his ISA and personal investments intact.  Withdrawals of £140,000 gross have been taken to pay for the care which have resulted in a £28,000 income tax leakage on the withdrawals.

If the cost of care had been paid from the ISAs and personal investments, then the cost would have been £112,000 and would have reduced the estate by this value saving 40% tax on the £112,000.  This would have been a whopping £44,800 inheritance tax saving.

There was also some life cover in place, but this wasn’t put in trust and therefore was paid back to the estate on death again inflating the estate value and the subsequent tax bill.  With a simple trust form from the insurer, this could have been a further £80,000 inheritance tax saving.

Looking at the estate there has been some really good planning, a Business Relief scheme and some AIM shares are held which are exempt from inheritance tax which is pleasing to see.  This therefore suggests an element of advice had been given at some point in the past, but this was transactional and not ongoing.

Whilst people don’t like talking about death, it is a scenario we raise during most planning meetings.  I have always been, and always will be, an advocate of spending wealth to enjoy life.  If some simple planning can be done to reduce tax liabilities, then this is an essential part of an ongoing planning relationship.

Death will come to all of us one day but the tax paid on our demise is something that can be reduced.

If you take anything away from this blog, please look at your situation and those around you and where you are unsure speak to your professional advisors to ensure the simple, effective things are done.

Thanks for reading.