What Is the Best Way to Leave Inheritance to Children?
The most tax-efficient way to leave an inheritance to your children is to use your full nil-rate band (£325,000) and residence nil-rate band (£175,000) through a properly drafted will.
The residence nil-rate band only applies when you leave a qualifying residential property to direct descendants: children, stepchildren, adopted children, or grandchildren. Without a will naming them as beneficiaries, this allowance goes to waste. So the will is where it all starts.
Married couples should plan together, because when the first spouse dies, their unused nil-rate band and residence nil-rate band transfer to the survivor. That means up to £1 million can pass to children free of IHT when the second spouse eventually dies.
Alongside the will, consider making lifetime gifts early. Gifts to children become fully IHT-free after seven years, and regular gifts out of surplus income are immediately exempt with no upper limit if they meet HMRC's conditions.
If you want to control how and when children receive assets, particularly for younger beneficiaries, a trust is an option. Trusts carry their own tax charges and costs though, so take professional advice before setting one up.
The residence nil-rate band only applies when you leave a qualifying residential property to direct descendants: children, stepchildren, adopted children, or grandchildren. Without a will naming them as beneficiaries, this allowance goes to waste. So the will is where it all starts.
Married couples should plan together, because when the first spouse dies, their unused nil-rate band and residence nil-rate band transfer to the survivor. That means up to £1 million can pass to children free of IHT when the second spouse eventually dies.
Alongside the will, consider making lifetime gifts early. Gifts to children become fully IHT-free after seven years, and regular gifts out of surplus income are immediately exempt with no upper limit if they meet HMRC's conditions.
If you want to control how and when children receive assets, particularly for younger beneficiaries, a trust is an option. Trusts carry their own tax charges and costs though, so take professional advice before setting one up.