“If there is not enough cash in the estate to fund the tax payment, the executors will need to sell the deceased’s assets or source a loan to pay the tax. Interest is charged by HMRC if the tax is paid late but it may be possible to pay tax in instalments on certain assets.”
So is the family home a precious pile or a tax millstone?
Mr Hale says: “It can be both. Just 8 per cent of estates paid any IHT in 2016 to 2017 and this figure may well fall as the new tax-free residence allowance rules have come in around the clients’ home – which for many is their largest asset.”
However, he acknowledges the equation does rely on the person being in a position to devote their entire IHT allowance to tax-free property transfer. “Depending on how valuable the estate is in totality, the property can either be a tax millstone or well-loved family home," he says.
This is why Mr Hale is a strong advocate of financial advice and professional estate planning.
Mr Pickles agrees property can be a particular hurdle. He says: “Planning with the home is difficult, as continued occupancy by the potential donors is required, so a gifts with reservation can easily be invoked.
“Yet gifting to children can result in financial difficulties should they become bankrupt or get divorced, since the gifted property is an asset included in the financial assessment.”
As far as he is concerned, the classic whole-of-life policy in trust is “often the most effective planning option to meet the IHT liability and doesn’t rely on the property being sold, which can be a protracted and expensive process”.
But what about clients living abroad? Canada Life’s Mr Jones elaborates: “International property can be a problem in itself, as it can be liable to different laws of succession.
“Depending on the country, it can mean the property goes to someone other than the named beneficiaries of a UK will, so advice specific to the country where the property is situated is important. It may require a separate will to be drawn up in that jurisdiction.”
simoney.kyriakou@ft.com
Simoney Kyriakou is currently on maternity leave
