We live in a world where, happily, ever-greater emphasis is given to well-being. More than ever before, our society is attuned to a holistic approach embracing physical, mental and financial health, and how these factors interact.
They’re all ways of helping us to live better lives – and that should include finding better ways to prepare for the final stage. The past 12 months have rocked resolve but have also seen people appreciate different parts of their lives; you may even have been prompted to consider what happens after your death, in terms of both physical and financial arrangements.
This can be a difficult subject to broach – in fact, over a third of over-55s say they find the topic too hard to raise with their loved ones1. But doing so early is not only a way of protecting your family, but also of giving you greater peace of mind right now. It’s a win-win, making life better today and in the future.
A major piece of planning, often put off until it’s too late, is how to mitigate your Inheritance Tax (IHT) liability. Many IHT bills are avoidable – so now, as the end of the financial year approaches, is the time to make sure you make the most of exemptions and tax reliefs.
Negotiating the ins and outs of IHT is a complex business, so first take some time to consider your goals, such as who your estate will pass to, and whether it makes sense to pass money to family members now rather than on your death. And then discuss them with the right people: some conversations with your family will be necessary, of course, but it’s wise also to engage the help of an adviser. Every individual’s needs will be unique, so a tailored solution is required.
Here are some of the options you can consider and discuss. They will not only lessen the impact of IHT but could also help your family right now and leave you content in the knowledge that proper plans are in place.
1. Give now (to your family)
Giving away money and assets while you’re alive is perhaps the most rewarding way to reduce a future IHT bill. You can give away up to £3,000 a year, as well as make any number of small gifts up to £250. The value of those gifts will fall outside your estate immediately.
These could make a real difference to a child or grandchild’s future, perhaps at university, if they’re raising a house deposit, or when they start out at work. You could also consider contributing to a Junior ISA or investing up to £2,880 a year in a pension for them. (Bear in mind that one person cannot receive both a small gift and any of your annual gifting allowance in the same tax year.)
It is also possible to utilise any unused gifting allowance from the previous tax year. By combining individual contributions, couples can potentially gift up to £12,000 by 5 April.
Read more about tax-efficient gifting plans
2. Give away income you don’t need
There’s no limit on the number of regular gifts you can make out of your income, provided these don’t affect your standard of living. Keeping a record will speed up checks made later by HMRC – something you should remember for any gifts you make.
3. Save more into a pension
Money saved into a pension is not normally subject to IHT. Should you die before you’re 75, the proceeds from your pension can be paid as a lump sum or income to any beneficiary free from tax. After 75, beneficiaries will only need to pay tax at their marginal rate on withdrawals.
Read more about planning your pension.
4. Review your Will
The surest way to make sure that your intentions are carried out after your death is to draw up a Will. Most couples who are either married or in a civil partnership leave everything to each other, since this doesn’t usually attract IHT. But if you have a partner who falls outside this category, they could lose out to parents or children.
If your circumstances have changed, perhaps following a divorce, you may wish to amend your Will to make sure a new partner can inherit; or if you have remarried, to ensure as much goes to your children and grandchildren as you would like.
5. Buy life assurance in a trust
Sometimes, it isn’t viable to fully mitigate a future IHT bill. Taking out a life assurance policy where the sum assured covers the likely IHT bill, and placing it in a trust, could save your family from having to sell any of your assets to meet the liability. The trust ensures that the value of the policy falls outside your estate. It also means your executors will have the funds available when they need them, to settle your estate.
If the coronavirus pandemic has taught us anything, it’s the importance of being prepared. None of us knows where the next global or personal crisis will come from, only that we can help mitigate any impacts through effective planning.
Making sure that your estate is in order, and that those you love will be well looked after, can bring you peace of mind today and comfort for your family in the future. The end of the tax year is an ideal opportunity to discuss estate planning with your St. James’s Place Partner.
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.
1A survey of more than 2,000 people by wishLockr, 2018