Passing on your wealth

Talking about money with your nearest and dearest doesn't have to be the elephant in the room.

Although attitudes may be changing, albeit slowly, the tendency to keep the details of our finances under the theoretical floorboards could be detrimental to our loved ones.

Take Inheritance Tax (IHT) for instance. This is essentially a tax charge on the estate of a deceased person, whereby broadly speaking their assets are added up, and anything over a certain limit (currently £325,000) may be taxed at 40%.

Now this is a complex area whereby the impact is commonly felt amongst the family members who are faced with already emotionally challenging circumstances and may not be best placed to cope with the additional demands of complex financial matters.

Early in 2021, Time Investments commissioned a survey to gain opinion from 1,019 over-55’s in Britain, whereby over half of them (52%) had no idea what their IHT bill might be.

You’d be forgiven for thinking that IHT only concerns the ‘wealthy’, and thankfully there are certain allowances in place, but with rising property prices, and budget announcements freezing such allowances at current levels for some time, it will mean that many more people could be dragged into this tax and would benefit from seeking professional help.

Having an eye on your future wealth and exploring ways to make tax savvy and efficient decisions with your money during your lifetime can really help to ensure that you are making the most of what you have, and also making the most of what you might want to leave as a legacy to your loved ones and/or dependants.

Given that most people are not confident about their current position, and the real danger that more and more households will be pulled into this tax bracket, taking professional advice can give you the confidence that not only will you have enough money to last your lifetime, but that you can also pass on your wealth in the best way possible to benefit your family and loved ones.

Our retirement experts, working with our tax specialists at Armstrong Watson, are on hand to guide, support and advise you through these life stages.

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We’ve put together some useful tips on making sound decisions now and in the future

Quite simply, making a will is the best way to decide who gets your money when you die. Many people still haven’t made one which can cause a few complications and a lot of uncertainty for the family of a deceased person who hasn’t made one. Having a regularly reviewed will in place will give you the control over where your money goes, and can have a big impact on the amount of tax on your estate should it be over the IHT thresholds as described above.

Although we don’t do wills at Armstrong Watson, our retirement specialists would always want to know that this is on your radar, and that you’ve considered taking action where appropriate with a legal professional.

Depending on the type that you have, pensions can be a very tax efficient way to pass on your wealth, which could even mean an income or lump sum to a family member or dependent.

Pensions are normally exempt from IHT, subject to a few scenarios where this might not be the case. Nevertheless, in the majority of cases, having an up-to-date will, along with accurate pension ‘nomination forms’ completed, can mean that your pension is passed on efficiently to your family. A ‘nomination’ or ‘expression of wish’ is a simple form that your pension provider can give you, where you can specify who, and in what proportion, benefits from any unused pension assets that you leave behind.

The death benefits which apply to you, will undoubtedly be linked to how flexible and modern your pensions are so it’s worth checking with your provider what your options are so you can plan ahead.

There are a few considerations to think about, and as with most things, if your financial affairs are complex, or you have multiple pension plans and other wealth, it could be wise to speak with your pension providers for guidance, and to seek financial advice should you require more personalised support for this.

If you are concerned that you may have an IHT liability, then reducing your estate whilst you are alive can be both useful and rewarding in many ways. You are allowed to gift up to £3,000 every year tax-free, and you can also gift up to £250 to as many people as you wish. There are also rules around gifts at major family events such as weddings, and charity donations are all tax-free, regardless of the amount.

If you’re feeling more generous then you can give away higher amounts, but then your estate may still liable for tax on this gift if you die within a short period of time. This can get complex so before you go splashing the cash, please seek expert guidance from our team if you are concerned about your wealth and the tax implications of gifting.

This is another way to use your wealth effectively whilst you are alive, and is essentially giving away excess income that you do not need, as long as it does not affect your own quality of life. You’d be wise to keep detailed records of your own spending as well as the gifts, as this may be needed in the future to assess any detrimental impact on your own lifestyle.

There are a whole range of potential solutions to ensure your wealth is passed on in the most efficient way in addition to the above, such as trusts, life insurance and flexible access drawdown succession. Get in touch with our retirement experts to look at the options available to you.

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