Pensions and inheritance tax: how to protect your legacy

Inheritance tax (IHT) is a 40% tax payable on whatever you leave behind for your heirs when you die, on estates above a certain value. But there are plenty of straightforward ways to minimise your potential liability.

Inheritance tax (IHT) is a 40% tax payable on whatever you leave behind for your heirs when you die, on estates above a certain value. Your estate with a few exceptions consists of the assets that make up your net wealth at the point of death. So that's everything from your house, to cash in the bank, to your investment portfolio. The bill usually has to be paid by the executor of your estate within six months of your death, or the tax office will start charging interest.

When you summarise it in this way, it sounds pretty brutal, and it's little wonder that it's an extremely unpopular tax. It's bad enough having to contemplate your own mortality without also having to worry about HM Revenue & Customs swooping in to add insult to injury by demanding 40% of your kids' inheritance. And while the number of people who end up having to pay it is small, rising house prices mean that a record number of estates were caught up in the net last year, with the IHT take hitting an estimated £4.7bn in the 2016/2017 tax year. But whatever your own view on IHT a progressive tax on unearned wealth, or an unfair levy on a lifetime's hard work the good news is that there are plenty of straightforward ways to minimise your potential liability, so that you don't end up paying any more than you absolutely have to.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.