Generational Inheritance Tax

Your children, grandchildren, and even your great-grandchildren may have to pay tax on money that you have already paid tax on.

This is called Generational Inheritance Tax.  It is a scheme that allows the government – if you don’t have protection – to tax your money for generation after generation; eroding the inheritance left with each generation.

Imagine this Generational Inheritance Tax scenario:

Your parents have worked hard all their lives and have built up a family home and other assets to take them above the Inheritance Tax threshold.

You are working to secure your family’s future and are also at the threshold yourself.

Your parents leave you an inheritance which is taxed at 40% on the amount over the inheritance tax threshold.

This inheritance along with your continued hard work takes you above the IHT threshold.

You then leave your assets to your children; including the assets you inherited from your parents.  As your own assets are above the inheritance tax threshold, everything you inherited from your parents is again taxed at 40%; meaning less passes to your children and grandchildren.

..and so on

Not many of us are happy to pay this 40% inheritance tax but think as it’s a one-off, it’s just one of those things that we have to put up with. However, the scenario of your children and your grandchildren possibly ending up paying 40% tax on the same assets that you did – it just doesn’t seem right.

If you don’t like the idea of this, a simple trust in your current Will could mean that the taxman will only get one bite of your children’s inheritance and protect your assets for future generations.

What does Generational Inheritance Tax look like in actual money terms?

As an example, if you are above the inheritance tax threshold and inherit £500k from your parents and then when you die – 40% or £200k will be lost again to the taxman.  If your parents had put it into a trust and not left it directly to you, it would be outside your estate and not subject to further tax. 

Contact us today to understand how we can help protect you against unnecessary Inheritance Tax.

Have a look at our video:

Relevant links:

Trust establishment

Will writing services