The saying that the only certain things in life are death and taxes (alongside toothache and having to pay for a roof over your head) is wheeled out time and time again when experts impress upon investors the need to plan for inheritance tax, or IHT.

The Government has announced changes to probate fees, which means they will be paid on a sliding scale depending on how much the estate is worth, rather than as a flat fee.

At the moment, families pay a flat £215 fee (or £155 through a solicitor) on any estates over £5,000.

From April 2019 this threshold goes up to £50,000, which the Ministry of Justice said would mean 25,000 estates per year won’t have to pay any probate fees at all.

However, estates worth between £50,000 and £300,000 will be charged £250, going to £6,000 for estates worth £2 million or more.

Lucy Fraser, Parliamentary Under Secretary of State for Justice told Parliament that the fees were, “an essential element of funding an effective, modern courts and tribunals service, thereby ensuring and protecting access to justice.”

She said: “We have revised fees so they will never be more than 0.5% of the value of the estate. Moreover, by raising the estate value threshold from £5,000 to £50,000, we will be lifting around 25,000 estates annually out of fees altogether. For those who do pay, around 80% of estates will pay £750 or less, and all income raised will be spent on running the courts and tribunal service.”

This is why planning for inheritance tax has never been more important, Anne McClean, a financial planner with Charles Stanley said she is surprised as how many investors manage to accumulate assets worth millions but forget to plan for IHT.

The thing is, IHT can – to some extent – be avoided – with some careful planning. Remember you don’t have to be rich to pay inheritance tax.

Because although last year HMRC extended the IHT tax-free allowance on the family by £100,000 (taking it to £175,000 by 2020) many people will still find themselves with an IHT bill when their loved one dies.

The challenge is to bring down your estate’s value to below the £325,000 threshold or £650,000 for couples.

If that doesn’t convince you – here are some compelling reasons why you need to review your inheritance tax planning now.

Reason one: we are all living longer

The latest ONS figures on life expectancy show a slowdown in life expectancy, but the long-term trend is for us to live longer and even though health improvements are not keeping up with our longer lives, people are working longer and building up more wealth than previous generations. With a trend towards retirees taking part-time jobs, it’s likely that property wealth will continue to increase as people are able to take out longer-term mortgages.

Jon Greer, head of retirement policy at Quilter, said: “Separate data from the government has revealed the 90 years and over population continues to increase despite a decline in births in England and Wales 90 years ago.”

Reason two: you may already have started your inheritance tax planning without realising

Pension funds are effectively free from IHT in the majority of circumstances. This is because any other funds held over the “nil rate band” – £325,000 for an individual, £650,000 for a couple – are subject to 40% tax on death. So while a fund is held in a pension, its investments are also protected from income and capital gains tax.

It is possible to lose the exemption for pensions from IHT. When it is transferred by a plan holder in poor health and they subsequently die within two years HMRC may then challenge the plan and it could become subject to IHT. Although this stance is itself under challenge in the courts, it is advisable to position your pension correctly when you are fit and healthy. Putting in place your pension nominations as early as possible in accordance with your wider retirement planning is crucial to ensure that tax efficiencies are achieved and family wealth is preserved. Early preparations are advised, but in terms of the Lisa, it would be wise to consider the benefits of pension saving against this option.

Reason three: inheritance tax is not just about property

IHT covers everything. Scotttish Widows points out that the following may be subject to IHT, in addition to your home, so if you have family heirlooms worth substantial amounts, you need to include these:

  • Jewellery,
  • Savings and investments,
  • Works of art,
  • Cars,
  • Any other properties or land – even if they are overseas.

Reason four: if you are not married but have a partner

Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules.

Reason five: because if you don’t use it you lose it

Les Cameron, pensions and tax expert, and head of technical at Prudential urges investors to make use of the £3,000 annual gift exemption to cut inheritance tax Inheritance tax (IHT) can be reduced by giving away assets.

He said: “Clients with a potential IHT liability can gift £3,000 every tax year free of IHT. If unused, there is a one-year carry forward. Those who made no gifts in the previous tax year, and none so far in the current tax year will have £6,000 available (£12,000 for married couples and civil partners).”

If gifting larger lump sums, the sooner the seven year clock starts the better.

Reason six – IHT could be the weapon with which to beat intergenerational inequality

The UK is expected to have an extra four million households headed by an over 65 year old by 2041.

Rachael Griffin, tax and financial planning expert at Quilter, urged investors to make use of IHT to help younger relatives.

She also pointed out that the financial industry has been campaigning for the IHT allowance to be raised in order to allow the older generation to pass down their property wealth to younger relatives who have been hit by rising house prices, slowing wage growth and shifts such as student debt: “According to the statistics, the net household property wealth of those aged 60 to 62 years was six times that of those aged 30 to 32 years during July 2006 to June 2008, however, this difference increased to 17 times by July 2014 to June 2016.

“Increasing the IHT gifting allowance, which would help wealth trickle down the generations earlier. Findings from an Old Mutual Wealth survey earlier this year suggested that there is a clear appetite for lifetime gifting, with 71% of people saying that they want to pass on their wealth during their lifetime or both during lifetime and on death.

“Considering the IHT gifting allowance has not changed since 1981, these states hopefully should spell out to the government that it is high time for change. Had the annual allowance tracked inflation, it would now be permissible to gift £10,932.20 per tax year in 2017, according to the Bank of England inflation tracker. If the allowance was updated to £11,000 it may immediately cascade £82.6 billion to lower generations, in turn helping these future households cope in retirement.”

Samantha Downes, Editor, What Investment online

This article was first published on What Investment on 10 September 2018 and was updated on 6 November 2018 following the recent probate announcement.