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How much more money will you give the taxman, when you leave this mortal coil..?
According to the ONS in 2017, Inheritance Tax (IHT) revenue is expected to be £6.2 billion in 2021/22, up from £5.2 billion in 2018/19.
Interestingly, lots of people do not seem to care about IHT, having loyally paid taxes through one’s life, it seems that many just accept they will give even more when they die.
This is a very generous gesture, may I suggest, as the government will make sure that your ‘life’s work’ is distributed evenly and will decide who enjoys it!
Is there another way?? Well, yes there are alternatives whereby you could distribute your hard-earned money to those that YOU feel more deserving!
As an active adviser in this area of tax planning we make sure to discuss this important topic with our clients at our regular review meetings. We will consider the value of the estate and establish what if any actions could be taken to ensure that more of their hard-earned money goes to the people they want rather than the taxman!
In my experience I would suggest that it is not that people don't want to save the tax, it is more a case that they don’t think there is anything they can do or that it is all just too complex.
The reality is that more and more families are now affected by Inheritance Tax as particularly for those of us who live in the South, our homes will typically use up our tax-free allowance.
However, I do tend to find that the older a client is the less interest they have in this topic, not sure why, maybe the kids don’t visit them anymore? (children be warned). The main concern I hear is usually 'but what if I need the money’ Typically, this would be for long term care and this will certainly burn through money which could actually resolve an IHT issue! AgeUK say 41% are concerned about going bankrupt in old age and I for one am not surprised at this statistic as later life care is not cheap.
Statistically a certain percentage of people will go into a home and will live there for around 3 years as their last home, but that won't apply to everybody, so many will still have a problem.
Like all planning some action is better than no action...
There are lots of actions that can be taken, the simplest being to give some money away, live 7 years and see the smile on the ‘little cherub’s’ face! If you don’t believe me try it, but don't forget you can also use your annual 'gift allowance' of £3,000 each year.
Gifts to charities are also exempt. Save the Children, World Wildlife Fund and even animal sanctuaries, there is a charity for everyone.
Now let’s assume you love your children and grandchildren, there are various trusts which you can use and again this requires giving assets away, but not all trusts are the same, some allow withdrawals if the need should arise. If you really can’t stand giving any money away and/or feel that you won’t live long enough to fulfil the seven-year rule then there are 'clever' products which allow you to retain control of your capital but are also IHT efficient over a much shorter timeframe (two years). All these types of products in the market can potentially save 40% tax!!!
Whatever your requirement, it may be possible to build a portfolio that provides you with enough capital and income with multiple solutions so that you feel as ‘comfortable’ as you do today but with the added benefit that your wealth ultimately goes where you want it to.
As a Chartered Financial Planner, I am familiar with the types of vehicles that protect our client’s wealth so do contact us if you would like to have an initial chat.
Steven is a Fellow of the Personal Finance Society, whom is passionate about investing and getting the most from your money.
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The FCA does not regulate taxation advice. The value of your investments may fall as well as rise.
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