Why pay IHT every generation?
If you are planning to leave your estate to someone who is well off in their own right you should consider using a Will Trust to reduce overall Inheritance Tax (IHT) exposure.
For example, IHT charges can erode the value of a £300,000 legacy to just £108,000 if left outright to children who then pass it on to grandchildren.
(On first death £300000 – 40% tax = £180000. On second death £180,000 – 40% tax = £108000)
Using a ‘Will Trust’, you can avoid the second charge (£72000) but still allow your children to benefit, during their lifetime, from either the trust income or the underlying capital.
There are usually some IHT charges levied on the assets in trust, but these are a maximum of 6% every 10 years, and to the extent that you children (or primary beneficiaries) don’t need the underlying capital it is protected for future generations (secondary beneficiaries).
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