Inheritance Tax Planning and Capital Gains Tax: How Being Organised Could Help Reduce Your Family’s Tax Bill
Nobody likes to think about the tax their family may have to deal with after they die. But a little organisation today could make an enormous difference to the people you leave behind.
Inheritance tax planning is often associated with complicated financial arrangements, trusts and tax advisers. In reality, one of the most useful places to start is much simpler: understanding what you own and making sure the important information can actually be found.
Property, savings, investments, pensions, insurance policies and other assets can all form part of the wider financial picture your family may eventually need to understand.
And then there is Capital Gains Tax, another area that can become relevant when assets such as property or investments are sold.
Being organised will not, by itself, reduce your tax bill. However, good records can help you and your professional advisers make informed decisions while you are alive and can make it considerably easier for your family to deal with your estate afterwards.
That is where planning ahead can really matter.
What is inheritance tax planning?
Inheritance Tax is a tax that can become payable on a person’s estate after they die, depending on the value and circumstances of that estate and the exemptions and reliefs that apply.
The personal representative dealing with an estate will normally be responsible for dealing with any Inheritance Tax due before the inheritance is distributed to beneficiaries.
Inheritance tax planning is therefore about understanding your financial position and considering, usually with appropriate professional advice, what steps can be taken during your lifetime.
Effective tax planning starts with knowing what you actually have.
That could include:
- • Your home and any other property
- • Bank and savings accounts
- • Shares and investments
- • Pensions
- • Business interests
- • Life insurance policies
- • Valuable possessions
- • Trust arrangements
- • Debts and liabilities
- • Gifts you have previously made
If this information is spread between filing cabinets, email accounts, online portals, notebooks and different financial providers, even establishing the overall value of an estate can become more difficult.
Being organised gives you a much clearer starting point.
Where does Capital Gains Tax fit into estate planning?
Capital Gains Tax, often shortened to CGT, is a tax associated with gains made when certain assets are disposed of.
It is important, however, to distinguish between Capital Gains Tax during someone’s lifetime and what happens when somebody dies.
Death itself does not normally create a Capital Gains Tax charge. For CGT purposes, assets owned at the date of death are generally treated as passing at their market value on that date.
Capital Gains Tax may subsequently become relevant if assets belonging to the estate are sold and have increased in value since the date of death or their Inheritance Tax valuation.
Similarly, someone who inherits an asset may need to consider Capital Gains Tax if they later dispose of that asset.
This is one reason why good record keeping matters.
Property information, valuations, investment records and details about different assets can be extremely useful when your executors, beneficiaries, accountants or financial advisers later need to establish what happened and when.
How could being organised help reduce your family’s tax bill?
It is important to be clear: organisation on its own does not reduce Inheritance Tax or Capital Gains Tax.
What organisation can do is put you in a much stronger position to undertake proper tax planning.
If you have a clear picture of your estate, you can discuss it with your solicitor, financial adviser or tax professional and identify areas that may need attention.
Without that information, it is much harder to plan effectively.
Know what you own
A good starting point is creating a clear record of your assets.
You do not necessarily need every account balance to be updated every week. What matters is that there is enough information to establish what exists and where further information can be obtained.
For example:
Property
Record the address, ownership information, mortgage provider where appropriate and the location of relevant documents.
Bank accounts
Record the financial institution and enough information for the account to be identified securely.
Investments
Keep details of investment providers, advisers and the location of important statements.
Pensions
Record pension providers, policy information and relevant contact details.
Life insurance
Make sure your family knows that a life insurance policy exists, who provides it and where the relevant documentation can be found.
Business interests
If you own or partly own a business, make sure your executors know about it and know who your accountant, solicitor and other professional advisers are.
Simply creating this overview can reveal gaps that may otherwise remain hidden for years.
Keep important property and valuation records
Property is often one of the largest assets within an estate.
Keeping your property information organised can therefore be particularly valuable.
Relevant information may include:
- • Purchase documentation
- • Ownership records
- • Mortgage information
- • Details of substantial improvements
- • Previous valuations
- • Rental or investment information
- • Details of your solicitor or conveyancer
Valuations can be particularly important following a death because the market value of an asset at the date of death can subsequently be relevant when calculating Capital Gains Tax.
Making sure this information can be found could save your family considerable time later.
Keep a record of significant gifts
Gifting is another area that frequently appears in discussions about inheritance tax planning.
UK Inheritance Tax rules can take account of certain gifts made during a person’s lifetime, and the timing and nature of a gift can affect its treatment. HMRC’s rules include provisions relating to gifts made within seven years before death, alongside various exemptions and other conditions.
For this reason, simply remembering that you “gave the children some money a few years ago” may not be enough.
Consider keeping a record containing:
- • What you gave
- • Who received it
- • The date it was given
- • Its approximate value
- • Any supporting documentation
- • Details of any professional advice received
Your tax adviser or executor can then determine what is relevant rather than trying to reconstruct several years of financial history from incomplete bank statements.
Keep your will and estate planning documents organised
Tax is only one part of planning your estate.
Your family may eventually need to find a wide range of information, including:
- • Your latest will
- • Solicitor’s details
- • Financial adviser’s details
- • Accountant’s details
- • Property information
- • Insurance policies
- • Pension information
- • Trust documentation
- • Investment information
- • Details of debts
- • Funeral wishes
- • Other important instructions
The difficulty is that these documents are often kept in completely different places.
Your will might be with a solicitor.
An insurance policy could be buried in an email account.
Investment information may only exist through an online portal.
Property paperwork may be sitting in a cupboard.
And your family may not even know which financial adviser you use.
Being organised means bringing the information together so the people dealing with your affairs know what exists and where to find it.
What information might your family need when dealing with Inheritance Tax?
When someone dies, the people responsible for administering the estate need to understand the assets and liabilities involved.
Depending on the circumstances, this might mean locating information relating to:
- • Property
- • Mortgages
- • Current accounts
- • Savings accounts
- • Investments
- • Shares
- • Pensions
- • Life insurance
- • Business interests
- • Trusts
- • Valuable possessions
- • Outstanding loans and debts
- • Significant lifetime gifts
- • Professional advisers
Inheritance Tax is normally dealt with as part of administering the estate, which is why being able to establish what the deceased owned can be so important.
Imagine having to identify all of this information for another person without knowing where they bank, where they invested, what insurance they had or even which solicitor holds their will.
That is the situation many families find themselves facing.
Could poor organisation cost your family money?
If important information cannot be located, your family and their professional advisers may have to spend time trying to reconstruct your financial affairs.
They may need to establish:
- • Which assets exist
- • Where accounts are held
- • Who your advisers were
- • Whether gifts were made
- • What property documentation exists
- • Which valuations are available
- • Whether there are relevant insurance policies
- • Where important legal documents are held
Good organisation reduces that uncertainty.
It gives the people administering your estate a clearer picture from which to work and gives professional advisers access to better information when considering Inheritance Tax, Capital Gains Tax and wider estate planning.
Inheritance tax planning should not be a one-off exercise
Creating an estate plan once and then forgetting about it for 20 years is unlikely to give your family the clearest possible picture.
Life changes.
You might:
- • Buy another property
- • Sell an investment
- • Receive an inheritance yourself
- • Start a business
- • Sell a business
- • Get married
- • Have children or grandchildren
- • Make a significant gift
- • Change your will
- • Change financial adviser
- • Take out a new insurance policy
- • Pay off your mortgage
Every significant change can alter the information associated with your estate.
That is why inheritance tax planning and estate planning should be reviewed periodically, particularly after major changes in your life or finances.
It is also important to remember that tax rules can change, so decisions designed to reduce Inheritance Tax or manage Capital Gains Tax should be based on current guidance and appropriate professional advice.
Put your important information in one place with LegacyHub
At LegacyHub, we believe being organised is one of the most useful things you can do for the people you love.
LegacyHub provides a secure digital vault where you can keep important documents, wishes, memories and information together, rather than leaving your family to search through paperwork, devices and different accounts. LegacyHub also allows you to choose someone you trust to access your legacy when appropriate.
You could use your LegacyHub to help organise information relating to:
- • Your property
- • Pensions
- • Mortgages
- • Insurance
- • Investments
- • Important documents
- • Professional advisers
- • Personal wishes and instructions
LegacyHub does not replace your solicitor, accountant, tax professional or financial adviser.
Instead, it helps you organise the information those professionals and your family may eventually need.
Think of it as making sure the pieces of your financial and personal life can be found when they matter most.
Start organising your estate before your family needs it
None of us can predict exactly what the future will bring.
But we can make things easier for the people we care about.
Good Inheritance Tax planning is not simply about trying to pay less tax. It is about understanding your estate, making informed decisions and ensuring that your affairs are properly organised.
The same applies to Capital Gains Tax.
Having clear information about your property, investments, gifts, valuations and professional advisers can give you a better foundation for tax planning today and make life much easier for those dealing with your estate tomorrow.
You have spent a lifetime building what you have.
Taking some time to organise it could help your family protect more of it, understand it and deal with it properly when the time comes.
Start organising your important documents, financial information and wishes with LegacyHub today, so the people you love are not left searching for answers tomorrow.
Frequently Asked Questions
What is inheritance tax planning?
Inheritance tax planning involves understanding your estate and considering how current Inheritance Tax rules, exemptions and reliefs may apply to your circumstances. Because tax and estate planning can be complex, professional advice may be appropriate before making financial decisions.
Can inheritance tax planning reduce the tax my family pays?
Depending on your individual circumstances, legitimate estate and tax planning may affect the amount of Inheritance Tax ultimately payable. However, there is no single strategy that applies to everyone, and being organised by itself does not reduce your tax liability.
What organisation does provide is the accurate information needed to have productive conversations with your professional advisers.
Does Capital Gains Tax apply when somebody dies?
There is generally no Capital Gains Tax charge simply because someone has died. Special rules apply, with assets generally treated using their market value at the date of death. Capital Gains Tax can subsequently become relevant if assets are disposed of.
What records should I keep for inheritance tax planning?
Consider keeping clear records of your assets, property, investments, pensions, insurance, liabilities, significant gifts, professional advisers and relevant estate planning documents.
Why should I keep records of gifts?
Certain lifetime gifts can be relevant when an estate’s Inheritance Tax position is assessed. Keeping a record of what was given, when it was given and who received it can make it easier for your executors and advisers to establish the correct position.
How often should I review my estate planning?
It is sensible to review your arrangements after significant personal or financial changes and to make sure your documents and records remain current. Tax legislation also changes, so professional advice should be based on the rules applying at the relevant time.
This article is provided for general information only and does not constitute financial, tax or legal advice. Tax treatment depends on individual circumstances and rules may change. You should seek appropriate professional advice before making decisions relating to Inheritance Tax, Capital Gains Tax or estate planning.
