Estate Planning and IHT
Leaving a legacy to your children and/or grandchildren can be an important part of the financial planning process. Especially when a lot of wealth is lost between generations if not planned for correctly.
Written by Ed Cannon
Independent Financial Advisor
Estate planning is the process of organising and arranging your assets and belongings in a way intended to manage your affairs and distribute your property after your death. In the United Kingdom, it is important to have a proper estate plan in place to ensure that your property and assets are distributed according to your wishes, and to avoid potential taxes and legal issues.
The rules surrounding inheritance tax can be complicated and not every threshold or limit you read about can apply to you. It is never too late to start planning but with almost everything finance related it is better to start early and with careful advice you can pass on your hard-earned money tax efficiently to be able to help your family.
The easiest and perhaps most accessible for everyone way of reducing your estate is through gifting. HMRC has various exemptions in place when you are gifting directly to family members and other people during your lifetime.
You are allowed to gift up to £3,000 per year without it forming part of your estate, any unused gifts can be carried forward to the next tax year (for a maximum of £6,000) and is on a per person basis so couples can benefit from 2 allowances.
For Weddings and civil partnerships, you are able to gift up to £5,000 for your children, £2,500 for your grandchildren, and £1,000 for anyone else.
You are also able to give as many gifts of £250 to people as you like providing they haven’t used one of the above exemptions.
Finally gifts to UK registered Charities and political parties are usually exempt from your estate.
There is no limit to how much you can actually gift, but anything over the above exemptions would be classed as potentially exempt transfer and will start a 7-year clock before they are completely out of your estate. Your executors can claim taper relief from year three onward which could reduce, but not eliminate, any potential inheritance tax if you were to pass away before the 7 years was up.
If you would like a greater degree of control over the gifts then there is the option to put the money into trust which will allow you to decide when the money is distributed and what for. The rules and exemptions around trusts are a lot more complicated but used in the correct way can be an effective estate planning tool.
This is only a small part of the overall IHT picture and an article covering everything would probably bore us both to death. If you think that Estate planning is something that you want to explore more and would like to speak to one of our advisers, please do not hastate to contact us.