Estate Planning

Many individuals work hard throughout their life but without planning they can leave their beneficiaries with a huge tax bill.  There's a misconception this only applies to the wealthy which is no longer the case, especially with property prices increasing so much over the years.   

The Inheritance Tax (IHT) allowance is £325,000 per individual which means you don't pay any tax up to this level. This has been frozen at £325,000 since April 2009 and will remain static until April 2026.  

Furthermore, you're allowed up to an additional £175,000 which is linked to your main residence, but this only applies if you pass your property down to direct descendants, such as the children, step children or grandchildren etc.

IHT is payable at 40% on assets which exceed the relevant thresholds above, which can be a significant amount.  

In short, each individual can have up to £500,000 as an allowance. This is transferrable to your spouse on death, meaning as married couple you have up to £1m before there's any Inheritance Tax. 

The good news is that there's a number of things you can do to reduce Inheritance Tax, some simple steps include:

1. Gifting:

• You can give away £3,000 each year without being liable to IHT. If you miss a year, this can also be brought forward.
• Gifting out of your everyday income, provided it doesn't impact your standard of living can also be outside of your estate straight away.
• Larger gifts can be made and if you survive 7 years, this will also be outside of your estate for IHT.
• Spend it…! With careful cashflow modelling this can help determine whether you are in a good place to spend more without jeopardising the sustainability of your retirement, which arguably is the best way to mitigate this tax.

2. Pensions:

• It's a must to ensure you have the right beneficiaries on any existing pension and nominating someone other than a spouse will ensure the funds bypass your estate, thus being exempt from IHT. However, it's prudent to seek advice to ensure the existing pension can facilitate this and you can afford to pass funds to other family members or friends.

3. Trusts:

• There are various Trusts which can limit or reduce IHT. This can be an effective way to mitigate the 40% tax but given this is a more complex area of planning, professional advice is always necessary which we can help with.

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There are a number of options to consider with this and we work closely to understands your objectives and goals to help build a plan which provides comfort in passing funds on, but mitigating the tax where possible.

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Risk Warnings

The value of investments and any income from them can fall as well as rise and you may not get back the original amount invested.

Past performance is not a reliable indicator of future performance and should not be relied upon.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen. The Financial Conduct Authority does not regulate tax planning/will writing.