Scullion News & Resources
Recent figures have highlighted the potential cost of leaving Inheritance Tax planning until it is too late.
More than £1 billion in Inheritance Tax was paid on lifetime gifts made by individuals who died within seven years of making those gifts between 2020 and 2024, according to figures obtained by NFU Mutual.
More than 5,000 estates were affected, with 1,390 estates paying a combined £315 million on gifts in 2023/24 alone.
The figures, reported by Scottish Legal News, are a useful reminder that estate planning is something to consider well before it becomes urgent.
Early planning can provide greater flexibility when it comes to deciding what happens to your assets and how your estate will be dealt with in the future.
Why does timing matter?
One of the key rules surrounding lifetime gifts is the seven-year rule.
Broadly, if you make a gift and survive for seven years afterwards, it will generally fall outside your estate for Inheritance Tax purposes, subject to the type of gift and the circumstances involved. If you die within seven years, the gift will still be taken into account but a sliding scale of tax, known as “Taper Relief” is applied instead. It is also important to understand that the seven-year rule is more complicated than simply assuming that any gift made more than three years before death will receive a reduced tax charge. The interaction between gifts, the available nil-rate band and taper relief can be complex.
This means that leaving decisions about gifting until later in life can limit the options available to you.
That is why taking advice before making significant gifts is important.
You don’t have to consider yourself wealthy
For many families, the value of a home, savings, investments, and other assets can add up to a significant estate, particularly after a lifetime of building wealth.
Each person has an Inheritance Tax threshold of £325,000 (called the Nil Rate Band). This is the value up to which no Inheritance Tax is paid. There also exists a further exemption called the residence nil-rate band which provides an additional tax-free allowance of £175,000 per person for qualifying estates. Unused allowances can also be transferred between spouses or civil partners. It is also important to highlight that all assets passing between spouses and to charity pass free of Inheritance Tax.
With property values and other assets increasing over time, more families may find that their estate requires careful consideration.
Estate planning is about more than Inheritance Tax
A good estate plan should not be driven solely by the desire to reduce a potential tax bill.
It should start with understanding what you own, how those assets are held, who you would like to benefit from them and what arrangements you already have in place.
For Scottish families, this also means considering your Will, succession arrangements and the administration of your estate. It can also be an opportunity to consider wider future planning, including Powers of Attorney and what would happen if you became unable to manage your own affairs.
Your circumstances may also change over time. Marriage, divorce, the birth of children or grandchildren, retirement, receiving an inheritance or acquiring a property can all be reasons to review your plans.
What can you do now?
There are some straightforward steps you can take to start thinking about your estate plan:
Estate planning should be a holistic exercise involving solicitors, accountants and tax advisers all of whom will make sure your affairs are properly considered, your wishes are clear and your family has as much certainty as possible about what happens in the future.
You do not need to wait until retirement, a major life event or a change in your health before reviewing your arrangements. Starting the conversation early can give you more time to understand your options and make informed decisions.
If you have not reviewed your Will or wider estate plans for some time, the Estates and Future Planning team at Scullion LAW can help you consider whether your current arrangements continue to reflect your wishes and the needs of your family.
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