Your Wealth – Your Legacy

In my recent blog ‘to gift or not to gift’ I talked about how too much money can leave you with a difficult quandary regarding gifting. But what is too much money, and have you even considered your Legacy or Inheritance Tax?

Data from the Office of National Statistics shows that IHT receipts increased by 22.9% in the first quarter of this tax year. The figures show that since March, more than £2billion has been taken from people’s estates in IHT.

According to new research[1], almost half of UK Adults (47%) say they have never discussed Inheritance matters.  Talking about estate planning can of course be an extremely emotional subject as people generally don’t like talking about death or money. However, research shows that around one in ten people would like to talk about it but haven’t found the right time, whilst some people just don’t know where to start.

Amongst the most common reasons given for not discussing Inheritance are; not old enough so it’s not a priority, don’t like talking about it, and avoiding it because it’s a morbid subject.

However, whilst approximately a third of people say they don’t feel comfortable talking about their legacy, there are some life events that may prompt people to talk to loved ones, such as a health scare, a near death experience and getting older. Research suggests that after their partner or spouse, people feel most comfortable talking to their mum or a financial adviser in the first instance.

So just what can you pass on?

When someone dies, the value of their estate becomes liable for IHT. Everyone is entitled to pass on assets up to the value of £325,000 IHT-free. This is called the ‘nil-rate band’. It hasn’t changed since 2009 and will remain frozen until 2021.  Any excess above £325,000 is taxed at 40%.

Residence nil-rate band

The new £100,000 residence nil-rate band was introduced in April 2017. It will increase in steps to £175,000 in April 2020 so married couples or registered civil partners with children will be able to pass on up to £1 million IHT free, as this is in addition to the ‘nil rate band’.  However, the residence nil rate band is only available when passing on the family home, or the value from the sale of it, to a direct descendant, so it is important to consider structuring your estate to make the most of these allowances.

5 Conversational topics to have with your loved ones

  1. The importance of an up to date will – When you are making a will, this is a good time to talk to your family about your wishes. Research found that just four in ten over 55’s have an up to date and valid will.
  2. Take advantage of the gift allowance – gifting small sums or money regularly throughout the year can be a great way to financially help loved ones, as well as reduce your IHT liability. See my previous blog http://carpenter-rees.co.uk/blog/gift-not-gift/ for further information on gifting.
  3. Let life events help you start a conversation – It’s not only negative events that can prompt a discussion about inheritance matters. Positive events such as the birth of a child or a marriage can also make people evaluate their plans. Use these opportunities as a way of talking to relatives about how you would like to pass on your wealth.
  4. Talk about later life care – Social care is a much talked about topic, and many people are worried about how they will pay for care when they get older. As a result, people are starting to plan for this earlier, and this provides an ideal opportunity to also talk about your estate planning.
  5. Talk about family heirlooms – If you find it hard to approach the subject of estate planning with your family, then a good place to start could be talking about family heirlooms. People love to hear stories about other relatives even if they never had the chance to meet them and this can be a great opportunity to start a conversation about estate planning.

For more information, please see the November / December edition of our smartmoney magazine, http://carpenter-rees.co.uk/resources.html

Planning for what will happen after your death can make the lives of your loved ones much easier. To discuss putting in place an estate plan to reduce or mitigate Inheritance Tax, please contact us – don’t leave it to chance.

 

[1] Brewin Dolphin

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