Pension – death benefit nomination form or expression of wish form 

If you have any sort of pension arrangement, you should ensure you have completed either a death benefit nomination form or expression of wish form, making it clear who should receive your pension benefits in the event of your death. Pension death benefits are mostly paid at the ‘discretion of the scheme trustees’. Therefore, if you have not made it clear who should be considered to receive the benefits by completing an appropriate form, in the event of your death, the trustees will make the decision on your behalf and may not pay out to those you would want to receive the benefits. 

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Junior Pension 

You can make contributions of £3,600 each year to a junior pension for a child/children (or grandchild/grandchildren, but a parent or legal guardian has to open the plan). The actual cost to you is £2,880 as the government will pay £720 in tax relief. Control of the pension will pass to the child at age 18 but the benefits of the plan will be locked away until the normal minimum pension age which will change to age 57 from April 2028 (currently age 55). 

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Junior ISA 

The current junior ISA allowance is £9,000 (2021/22 tax year). A child must be under age 18 and living in the UK. The child will take ownership of the ISA at age 16 but cannot withdraw any money until age 18. Children can hold cash, stocks & shares or both types of ISA. Only a parent or legal guardian can open a junior ISA but quite often these types of ISAs are funded by grandparents. 

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Gifts – monetary gifts free from Inheritance Tax (IHT) 

Each individual is allowed to ‘gift’ certain amounts in their lifetime which are exempt from Inheritance Tax (if applicable). Gifting is a good way to pass on your wealth during your lifetime whilst reducing your potential IHT liability. Whilst you are alive, you have £3,000 gift allowance per year (the annual exemption) – this means you can give away assets or cash up to a total of £3,000 in a tax year without it being added to the value of your estate for IHT purposes. Any part of the exemption which isn’t used in the tax year can be carried forward to the next tax year but it can only be carried forward once. In this way there may be potential for a gift of up to £6,000. 

There are other exempted gifts where the amount depends on who makes the gift, who receives it and the purpose of the gift. 

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Trusts 

Using trusts can be complicated but they are a very useful way to mitigate Inheritance Tax and ensure your loved-ones can benefit from your wealth either during your lifetime or after your death, and you don’t necessarily have to give up access to the capital either! 

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Assignment – investment bond segments 

If you have investment bonds they tend to be written as a number of policy segments. Segments can be ‘assigned’ to other individuals, so for example if you have an investment bond made up of 20 segments, you could choose to assign two segments to a loved one you want to benefit, who will then take ownership of the segments. This assignment does not crystallize a gain and if the beneficiary subsequently cashes segments in, any income tax due on the encashment would be paid by them (not you). If they are a non-taxpayer or basic rate tax-payer and the encashment does not push them into a higher tax bracket, there is no tax for them to pay. 

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Make a will! 

Make a will! Sounds simple, but so many people do not make them, or those that do, do not keep them up to date when family circumstances change (marriages, births, deaths, divorces etc). In the absence of any other instructions, a will ensures your wishes are known and can alleviate the uncertainty for your loved-ones as well as removing the pressure for the executor(s) of making the wrong decisions.