Handle inheritance tax with a spousal bypass trust

Those looking to minimise the amount of inheritance tax they pay have been informed of a mechanism called a spousal bypass trust.

Philip Hasell, a chartered financial planner at a law firm, wrote for Citywire.co.uk that these are not well-known but can be used to help people avoid paying heavy taxes for inherited pensions.

He said that if people pass away prior to investing their pension benefits they can nominate people to be handed this sum tax-free.

“Spousal bypass trusts are not a new concept but they are possibly one of the most underused inheritance tax (IHT) planning tools when it comes to pensions,” he added.

Mr Hasell issued inheritance tax advice, saying that a person could set up a discretionary pilot trust while they are alive and name beneficiaries for it, such as their children.

These beneficiaries will receive their pension after the creator of the trust and their spouse have died, and could save on inheritance tax as the money was never included in the assets belonging to the trust creator’s spouse.

People may also want to include an equity release scheme in their inheritance tax planning, so that the money they get from their property can be given to their heirs.

Published by Hannah Carr