INHERITANCE tax ( IHT) is a huge worry for many families, so it is not surprising that companies are coming up with ever more inventive schemes to reduce the burden.

Current rules mean that if you die with more than £300,000 of assets, the excess is liable to a 40 per cent tax. At the death of a spouse or civil partner, the surviving partner inherits any unused nil-rate allowance, bringing their threshold up to a maximum of £600,000.

In recent weeks, two new solutions to the IHT problem have been made available: an agricultural land scheme and a new type of flexible trust. The WAY Group (waygroup.co.uk) says that its Duo Inheritor Plan trust cuts the size of an estate for IHT calculations while still giving the plan holder access to his or her funds.

The plan works like a standard discounted gift trust, in that it pays an income to the person establishing the trust. A calculation is made on the total income that person will be paid from the trust, based on life expectancy, and it is this amount that is considered outside of the person’s estate for IHT purposes.

Trusts with which the individual benefits from this discount usually have strict limits on access to the cash gifted. However, the design of the WAY Group plan allows for much greater flexibility over withdrawing cash and gives plan holders access to up to 60 per cent of the fund held in the trust.

“The plan should appeal to anyone in their sixties, seventies and beyond who wants to reduce their estate and still have the flexibility to dip into a large proportion of the cash invested, if they need to. In inheritance planning terms, it’s the sexiest thing around,” says Paul Wilcox, the chairman and technical director of the WAY Group.

While advisers can see the attraction of such arrangements, some remain cautious. Jason Witcombe, of Evolve Financial Planning, says: “The racier a scheme sounds, the more I worry that the Chancellor might clamp down on it retrospectively.”

Another new option for those hoping to reduce IHT liability is the agricultural land scheme from Braemar Group (www.braemar-group.co.uk ), whereby investors buy shares in an unquoted plc that buys and then manages farmland. After two years the value of the investor’s holding in the company is outside of his or her estate for IHT purposes because agricultural land then qualifies for business property relief.

With a minimum investment of £10,000, the fund may appeal to those who want to invest in land but lack deep enough pockets to buy their own slice of the countryside.

Steve Smith, commercial director at Andersen Charnley, the wealth manager, points out that, as well as the IHT benefit, agricultural land can be a worthwhile element of an investment portfolio. He says: “Agricultural land does not correlate with other assets, so it could have a place in your portfolio. You should always start from the point of view of whether you like the investment or not, because if it does not perform then you could lose what you might get back on the tax. Never let the tax tail wag the investment dog.”

There are no guarantees that the price of land will always go up, but Braemar Group says that agricultural land is a good investment because of the twin drivers of demand for global cereal production. These are the populations of India and China eating more meat that feeds off grain, plus pressure to cut carbon emissions and switch to cereal-derived bio-fuels.

Possible alternatives to land schemes include a portfolio of shares on the Alternative Investment Market (AIM). Like agricultural land, these are considered outside of your estate for IHT. However, the high risk means that they are not for everyone.

Before rushing into any arrangement to reduce IHT, experts advise that you establish your objectives and then look at the simplest way to achieve them. They also caution against being drawn in by the IHT benefits of slick-sounding schemes before considering easier and cheaper solutions. Peter Nellist, of Clarke Willmott, the firm of solicitors, says: “Many people would be well advised to get back to basics.”

Straightforward solutions to the IHT problem include taking out a life insurance policy to cover the cost of your expected bill. For a couple aged 60, Mr Witcombe says that a £100,000 joint-life policy that pays out on the death of the surviving partner would cost about £120 a month. He adds: “The monthly premiums will also reduce your taxable estate for IHT, so the true cost for IHT purposes would be only £72 a month – £120 less 40 per cent.”

Mr Nellist says you can also reduce your estate by making regular gifts from income. A person with substantial assets could, for example, help his or her family with school fees or mortgages, as long as these payments are made out of surplus income and the gift does not have a detrimental impact on the donor’s standard of living.

If you are unable to make regular gifts, you can simply give cash away on an ad hoc basis. Within certain limits these donations are deemed outside of your estate, so long as you live seven years after making the gift. Charitable gifts in your will are also considered outside of your estate.

Regardless of how simple or complex your IHT planning needs, expert tax, legal and financial advice could pay dividends and help to ensure that your will meets your objectives.

CASE STUDY

GERALD THREADGOLD, a retired bank manager from Oxfordshire, bought a life insurance policy to cover the cost of his IHT bill. “We’ve paid tax all our lives and don’t want to pay any more when we die,” says the 77-year-old, who has a wife, children and grandchildren.

Mr Threadgold, pictured with his wife, took independent advice from Skipton Financial Services. The life insurance does not involve giving up control of any savings, unlike some IHT plans. And should the threshold rise, and he no longer needs cover, he can simply stop paying the premiums.