How to make sure you NEVER have to pay inheritance tax by experienced estate planner IAN DYALL

Unless you are fabulously wealthy, there is no reason why you should pay inheritance tax. You can give away as much of your estate as you want, completely tax-free – as long as you do it during your lifetime and live for another seven years.

And if, understandably, you don't want to give it all away, there are many reliefs you can use to keep significant sums and at the same time not burden your loved ones with inheritance tax after your death.

I have been in the financial services industry for 34 years and the main reason bereaved families pay inheritance tax is not because of complex regulations or dealing with large sums of assets. No – it's emotional suspension.

I see the same pattern in families where there is constant conflict. People are often plagued by psychological problems that can have serious consequences for their finances.

Roy Jenkins, Labor chancellor in the late 1960s, described inheritance tax as “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.

While there are obvious exceptions to this rule, Roy was certainly on to something. I hear the same concerns over and over again.

What if I give the money to my adult daughter and she then gets divorced and the money goes to my horrible son-in-law? What will happen if my children waste my hard-earned money on trivial purchases, such expensive holidays and watches?

Can I really trust my 40-year-old son with a large sum of money – after all, this is the same person who wrapped his car around a tree without insurance at the age of 18?

What if I give money to my children and they put it into their business and it fails?

Sometimes people leave their loved ones with an avoidable inheritance bill because they simply didn't want to think about death – or they believed they had more time than they actually did.

A couple I know refused to write a will because they feared it would tempt fate.

However, inheritance tax is an issue that an increasing number of people cannot ignore.

The rise in asset values, combined with the fact that the zero rate threshold, unchanged since 2009 at £325,000, will remain frozen until at least April 2028, means that many more relatively modest estates are being included in the inheritance tax net.

Married couples and people in civil partnerships can combine their allowances to make a joint contribution of £650,000 tax-free. They can also transfer assets tax-free.

Anything above these allowances is subject to a flat 40% tax rate, although there is additional relief for the transfer of a family home worth less than £2 million.

There is also no inheritance tax payable on donations received from regular excess income.

But even if you accumulate wealth over your lifetime that exceeds your allowances, most taxes can be prevented or reduced by taking careful estate planning steps.

Roy Jenkins, Labor chancellor in the late 1960s, described inheritance tax as “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.

One of the most common problems – and the hardest to overcome – is the fear that you will run out of money if you leave a large portion to your family during your lifetime.

This is a valid concern that we as financial planners take very seriously when planning.

But it's amazing that even very rich people worry about this when, honestly, without complicated calculations, you can look at their net worth and see that they will never run out of money – even if they need expensive care.

Spending and enjoying the money you earn can improve your quality of life and reduce your tax bill on what's left after you die.

There are clever tricks we can use to take money out of your estate and use it for your children, but still make sure you have access to it if you ever need it. For example, you can leave an inheritance in a trust, and some allow you to retain some access to the money you gift while minimizing your inheritance tax liability.

If you want to use the trust to retain access when needed, you can only go up to the nil rate threshold – which is £325,000 (or £650,000 for a married or civil partnership couple) over any seven-year period. If you have a large property or want to put your home on it, it's a good idea to start early, hoping you have a few seven-year periods ahead of you.

You may not need trust after all. I see that in many cases the desire to maintain unnecessary control leads people to use trusts, which slows down the process. There may be some other tax

however, there are implications to consider, and since this is generally a complex area, trusts are best arranged with estate planners rather than on your own.

People often fear losing control over their wealth. They have worked hard throughout their lives and seen their net worth grow, so the idea of ​​passing it on to the next generation can be difficult to accept.

Sometimes it's important to put that aside and really consider when your children will benefit more from your hard-earned money.

Does it happen when they are in their 20s trying to climb the housing ladder, raising children, or sending them to college? Or maybe it happens when you die and they recently retired?

Very wealthy people sometimes don't want to pass on their wealth to their children when they become young adults because they fear it may strip them of their ambition and motivation. It's true that too much money too soon can do damage, but they'll get it sooner or later.

It's worth giving children some money at the beginning to see how they cope and get used to it.

If, for example, you buy them a house or give them enough for a deposit, they will still need a job to afford their lifestyle.

Unfortunately, I see cases like this every week where people hold on to their money until they become ill, and by then it may be too late to pass on their assets without risking inheritance tax.

There are no hard and fast rules, but the process should start when you retire, which is over 60 for most people. You don't have to take big steps, but start thinking about it.

For example, you can start to think about what you spend on and what you stick to.

Pensions do not count towards your estate and therefore do not attract inheritance tax, so this may be a better way to pass on your wealth than anything else. This means there may be better ways to fund your retirement while still maintaining it.

There are rumors that the Chancellor may impose inheritance tax on pensions in the upcoming budget. If this happens, will it really be a disaster?

Well, now you have a retained pension to draw on further into the future, so it's there if you need care. After all, you can only plan based on what you know.

Try to put your emotions aside or understand that your mental problems may cost you.

As told to Jessica Beard

Ian Dyall specializes in trusts, estate planning and inheritance tax. He works for Evelyn Partners, a wealth management company.