The potential impact of Trump’s tariffs on inheritance tax and estate planning

The introduction of tariffs by President Trump is primarily aimed at protecting US domestic industries and reducing trade deficits. However, these tariffs have far-reaching implications beyond international trade, extending into areas such as inheritance tax (IHT) and estate planning strategies. While tariffs do not directly alter UK inheritance tax laws, their economic impact could lead to the need for adjustments in people’s estate planning strategies to ensure optimal tax efficiency and asset preservation. 

One of the most direct ways tariffs can influence inheritance tax planning is through their impact on asset valuation. Tariffs on imported goods can increase the costs for businesses that rely heavily on these imports. This increase in costs can reduce the profitability of such businesses, subsequently lowering the value of business assets included in an estate. For example, a manufacturing company that imports raw materials subject to high tariffs may see its profit margins shrink, leading to a decrease in its overall valuation. This lower valuation can affect the estate's total worth, potentially reducing the inheritance tax liability but also impacting the wealth to be passed on at the point of your death.

Tariffs can also influence market conditions and therefore impact investment strategies. Economic uncertainty and market volatility have gone hand-in-hand with the introduction of these tariffs, which in turn is prompting many people to reassess their investment portfolios. For example, investors might shift the focus of their portfolio from international stocks to domestic ones to attempt to mitigate any risks associated with trade tensions. This shift can alter the composition and value of assets within an estate.

Given the broader economic impact of tariffs, some people might need to adjust their IHT mitigation approach to account for changes in asset values and economic conditions. The good news is that there are several tax-efficient vehicles and strategies that can be used to navigate these changes effectively:

This strategy involves transferring assets to your beneficiaries during your lifetime. By gifting assets that may be devalued due to tariffs, you can reduce the size of your taxable estate while potentially allowing your beneficiaries to gain from future appreciation. When gifting assets, including into trust, capital gains tax (CGT) can be payable. Gifting assets while gains are low can help to minimise this tax.

Establishing trusts can be an effective way to manage and protect your assets from economic volatility. Trusts can provide a structured approach to asset distribution, ensuring that your beneficiaries receive their inheritance in a tax-efficient manner. The amount that can be put into trust during your lifetime is usually limited to £325,000 (the nil rate band) before IHT is payable. While asset values are low, a greater number of these assets could be put into trust with any future appreciation falling outside of your estate.

Diversifying investments can help mitigate the risks associated with tariffs. By spreading investments across various asset classes and geographic regions, you can protect your estate from significant losses due to trade policies.

When you die, the value of your assets on your date of death is used to establish the amount of IHT payable. Where certain assets such as land and shares are sold, within a set timeframe, at a lower value than the value on your date of death, relief can be claimed to, in effect, substitute the sale value for the date of death value. 

Your estate plans should be reviewed regularly to account for changes in economic conditions and asset values. This proactive approach ensures that your estate plan remains aligned with your financial goals and the current economic landscape.

For more information about how Trump’s tariffs could affect your IHT strategy and ways to reduce the potential impact, speak to Evelyn Partners. Book an appointment today.