Society is, fortunately, more open to mental well-being than ever before. While there’s still much work to be done, the world is nevertheless more ready to embrace physical, mental and financial health from a holistic point of view, and there’s much greater awareness around how these factors interact.
Yet “living our best life”, as the phrase of the moment goes, should also seek to include finding more helpful ways to prepare for the final years. The past 12 months have tested our resolve to the hilt, yet have likewise seen people take stock and appreciate the value of different life stages. Indeed, you may have even stopped to consider what might happen following your death, as regards both physical and financial arrangements.
Granted, this isn’t the easiest of topics to bring up – in fact, over a third of over-55s say they find the topic too difficult to raise with their loved ones.1 Yet, having the courage to do so early on is a win-win, in that it’s a way of protecting your family in the future while giving you greater peace of mind in the present.
A significant planning point, which is often delayed until it’s too late, is how to reduce your Inheritance Tax (IHT) liability. Did you know that many IHT bills are, in fact, avoidable? As we reach the end of the financial year, you now have a ready opportunity to ensure you take advantage of exemptions and tax reliefs.
Debating the intricacies of IHT is no easy task, so take the time to first get some perspective on your goals i.e. who your estate will pass to, and whether it makes sense to gift money to family members now as opposed to after your death. Discuss these ins and outs with the right people too – some conversations will naturally involve your family, but it’s also sensible to seek the help of a financial adviser. No two individuals have the same needs, so a bespoke solution is the order of the day.
Read on to see just some of the options you can use as a starting point for thought and discussion. They will mitigate the impact of IHT and could also help your family right away, not to mention that you can be assured that secure plans are already in motion.
- The present is a gift
Looking for the most rewarding way to reduce a future IHT bill? You can give away a maximum of £3,000 a year to family members while you’re still alive, as well as make any number of small gifts up to £250 – the value of these gifts will fall outside your estate with immediate effect.
This option could make a veritable difference to a child or grandchild’s future in all sorts of circumstances, whether they’re at university, raising a house deposit, or starting out at work. Something else to consider is a contribution to a Junior ISA or an investment of up to £2,880 a year in a pension for them – be mindful of the fact that one individual cannot receive both a small gift and any of your annual gifting allowance within the same tax year.
You can also utilise any unused gifting allowance from the previous tax year – by combining individual contributions, couples could be in a position to gift up to £12,000 by 5th April.
Read more about tax-efficient gifting plans.
- Little and often
As long as they don’t impact on your standard of living, you can make an unlimited number of regular gifts out of your income, which is useful to know. It’s wise to maintain a running record of any gifts made, in preparation for potential future checks by HMRC.
- Grow your pension pot
Were you aware that money saved into a pension isn’t normally subject to IHT? If you pass away before the age of 75, the proceeds from your pension can be paid as a lump sum or income to any beneficiary, free from tax. After the age of 75, beneficiaries will only need to pay tax at their marginal rate on withdrawals.
Read more about planning your pension.
- Where there’s a Will
If you want to be as sure as possible that your wishes are carried out after your death, you’d be best advised to draw up a Will. The majority of couples who are either married or in a civil partnership leave everything to one another, as this doesn’t usually attract IHT. Yet if you have a partner who isn’t in this category, they could risk losing out to parents or children.
Has your situation changed, perhaps following a divorce, for example? It would be a good idea to amend your Will to ensure a new partner can inherit, or if you’ve remarried, you can be sure that as much passes to your children and grandchildren as possible, according to your wishes.
- Trust life assurance
It goes without saying that, sometimes, it just isn’t practical to fully reduce a future IHT bill. Taking out a life assurance policy where the sum assured covers the potential IHT bill, and placing it in a trust, could mean your family doesn’t end up having to sell any of your assets to meet the liability. The beauty of a trust is that it both ensures that the value of the policy falls outside your estate and means your executors will have the funds available when they need them, to settle your estate.
Plan with care
An important lesson from the pandemic is, undeniably, to be prepared (for anything!). Nobody can forecast when the next world or personal crisis will take place, but we can certainly gain come control over the potential knock-on effects through careful planning.
Making strategic moves now, to ensure that your estate is all in order for the future, ultimately means that you’ll reign triumphant over Inheritance Tax. Not only will your loved ones be well looked after, but you can also have some much-needed peace of mind, today.
Remember that the end of the tax year highlights a great opportunity to discuss estate planning with your Wellesley financial adviser – contact us today on 01444 244551 and we’ll be only too ready to help you map out those meaningful moves.
1A survey of more than 2,000 people by wishLockr, 2018
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.
Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills and Trusts are not regulated by the Financial Conduct Authority.