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What is Generational Inheritance Tax?

I know about Inheritance Tax is, but what is generational inheritance tax and is generational inheritance tax avoidable?

What is Generational Inheritance Tax?

As a British expat, unless you have changed your domicile you will still be liable for inheritance tax in the UK, as well as potentially inheritance tax in your country of residence.

Under normal circumstances if you are married and have children, the first person to die will leave their entire estate to their partner who will then pass everything to your children when they pass away.

As you are probably aware, for anybody who has an estate which passes the threshold for inheritance tax, this 40% tax on your estate when you die is inevitable.

However, what you may not be aware of is Generational Inheritance Tax.

What is Generational Inheritance Tax?

Generational Inheritance Tax is a scheme where money is taxed as it is inherited through the generations (i.e. when the money passes to your children’s children and so on).

In essence, this means that your children, and even your grandchildren, may be required to pay additional inheritance tax on money that you've already paid your 40% inheritance tax on.

This will normally be the case if you and your partner have mirror wills.

Assuming your children then make similar wills and leave everything to their children, your grandchildren will also pay tax on the same money.

This can mean that an estate may lose 60% of its original value through inheritance tax alone by the time it has been inherited by your grandchildren.

Preventing Generational Inheritance Tax

It is possible, however, to legitimately and legally avoid Generational Inheritance Tax through careful planning and by setting up a simple trust in conjunction with your will.

This will ensure that, while your estate will still be subject to an initial 40% inheritance tax, the HMRC will only get this bite of your children's inheritance and protect the remainder.

Last updated: 10 July 2019 at 11:05