Preserving your Legacy: How to keep your wealth in the family.

Are you worried about leaving an inheritance to your loved ones and then having them pay tax on your legacy? No one likes to think about a time when they won’t be here, but unfortunately the reality is that some people aren’t prepared financially.

Estates that pass on to a spouse, registered civil partner or charities are exempt from Inheritance Tax (IHT), even if the value of such estates is higher than the threshold limits. Estates that pass on to anyone else, including siblings, children and grandchildren, attract IHT.

DECIDING ON THE BEST WAY TO LEAVE YOUR ESTATE

If your estate is likely to suffer IHT, there are accessible solutions and strategies we can discuss with you to mitigate this tax. You may find the idea of discussing inheritance uncomfortable, but proper IHT planning could save your family hundreds of thousands of pounds. This is about deciding on the best way to leave your estate to those you love after you die, and to help ensure your loved ones are provided for.

When you die, the Government charges tax on your estate – and it could be a pretty significant amount. IHT is payable at 40% on assets within your estate that exceed the nil-rate band threshold (currently at £325,000) and is payable on assets that are passed on when you die. Nearly everyone has an estate, no matter how big or small it may be. This will include your property and business, cash and investments, cars, jewellery, art, and proceeds from life insurance policies not written in an appropriate trust.

TRANSFER TO A SURVIVING SPOUSE OR REGISTERED CIVIL PARTNER

An additional nil-rate band is available for individuals on their main residence if it is passed on to a direct descendant. Direct descendants include children (including stepchildren, adopted children or foster children) or grandchildren. This additional IHT-free residence nil-rate band is set at £150,000 in the 2019/20 tax year and will increase to £175,000 from 6 April 2020. As with the existing nil-rate band, any unused additional nil-rate band can be transferred to a surviving spouse or registered civil partner.

The residence nil-rate band is available on top of the existing IHT nil-rate band of £325,000,
so that in 2020/21 an individual will potentially be able to leave £500,000 free of IHT. As is

now the case with the standard nil-rate band, where the first of a married couple to die leaves their estate to their spouse, the residence nil- rate band can effectively be ‘passed on’ to the surviving spouse.

MORE TAX-EFFICIENT FOR IHT PURPOSES TO GIFT MONEY

While few of us enjoy talking about our eventual demise, not having a Will can result in assets passing to the wrong person or in a way that gives rise to a larger IHT bill. That’s why it’s equally important to keep any Will up to date. Tax rules and rates are always changing, and it is crucial to make the most of any new opportunities and to avoid any pitfalls. However, it can be more tax-efficient for IHT purposes to gift money while you are still alive.

TRANSFORMATIVE EFFECT ON BOTH YOUR AND YOUR FAMILY’S LIFE

Transferring wealth while you are alive can have a transformative effect on both your and your family’s life. Gifting money to a younger relative to top up their pension and an Individual Savings Account can substantially boost their income when they eventually retire.

Each year, you can give away £3,000, and that gift will not be subject to IHT. You can also give £250 to any number of people each year. Parents can give £5,000 to each of their children as a wedding gift. Grandparents can give £2,500, and anyone else £1,000.

FURTHER TAX-FREE GIFTS

Gifts of any size to charities or political parties are also IHT-free. If a gift is regular, comes out of your income and does not affect your standard of living, any amount of money can be given away and ignored for IHT.

It is also possible to make further tax-free gifts (‘potentially exempt transfers’), but you have to survive for seven years after making the gift to get the full benefit of it being outside your estate for IHT purposes.

TAKING A SIGNIFICANT AMOUNT OF WEALTH OUT OF YOUR ESTATE

If you pass away within seven years and the gifts are valued at more than the nil-rate band, taper relief will be applied. The tax reduces on a sliding scale if the gift was made between three and seven years earlier.

Many people think that IHT only concerns the very wealthy, but property prices are such that the value of your property alone can easily exceed the tax threshold. Don’t forget, IHT can take a significant amount of wealth out of your estate, making a big difference to the amount your heirs receive when you are gone.

HOW CAN I BE SURE MY WEALTH WILL REACH THE RIGHT PEOPLE?

First and foremost, IHT planning will help ensure your family is provided for and your loved ones are taken care of. It also means you can choose where your estate goes so there will be no confusion about your wishes. Professional IHT planning can also help minimise the amount of tax paid, so you can leave more to your loved ones. To discuss your concerns, please contact us.

Who are Vizion Wealth?

Our approach to financial planning is simple, our clients are our number one priority and we ensure all our advice, strategies and services are tailored to the specific individual to best meet their longer term financial goals and aspirations. We understand that everyone is unique. We understand that wealth means different things to different people and each client will require a different strategy to build wealth, use and enjoy it during their lifetimes and to protect it for family and loved ones in the future.

All of us at Vizion Wealth are committed to our client’s financial success and would like to have an opportunity to review your individual wealth goals. To find out more, get in touch with us – we very much look forward to hearing from you.

[1] https://assets.publishing.service.gov. uk/government/uploads/system/uploads/ attachment_data/file/730110/Table_12_1.pdf

DISCLAIMER:

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES, OF AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS

WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

“The information contained in this article is intended solely for information purposes only and does not constitute advice.  While every attempt has been made to ensure that the information contained on this article has been obtained from reliable sources, Vizion Wealth is not responsible for any errors or omissions. In no event will Vizion Wealth be liable to the reader or anyone else for any decision made or action taken in reliance on the information provided in this article”.

Posted by James Blackham

James particularly enjoys building close relationships with all clients and helping people identify and fulfil their long term financial goals. A highly qualified Financial Planner working towards Chartered status and is also a Pension Transfer Specialist. James is also a partner of Vizion Wealth LLP.

Leave a reply

Your email address will not be published. Required fields are marked *