When I speak to a client about Inheritance Tax (IHT) planning, alongside talking through their financial position, we also spend a lot more time discussing the more important things in life, the ones that really matter to them, like their family, their interests and their aspirations.
While important, planning to save tax is much less vital than having the peace of mind that comes from knowing your affairs are organised to enable you to achieve your retirement dreams. And it will also ensure that any future care needs will be covered, and your loved ones will be well looked after.
For those of us without crystal balls, planning the future can be a daunting task. So, to help you focus, I have summarised five ideas to think about – the last one being my favourite!
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Be a little pessimistic
As some commentators wryly note, IHT is only paid on the estates of those who were overly optimistic about their life expectancy or would rather the Crown benefits from their wealth, as opposed to their loved ones.
With this in mind, you need to establish how much you need to meet your own standard of living. However, understanding what you don’t need and, possibly more importantly, when you no longer need assets is key to any Inheritance Tax planning. Our tax advisors and Financial Planning team work together to help you establish a plan that works for you.
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Be organised
Do you have a will and a power of attorney? When was the last time you updated these? Wills can easily become out of date and should be reviewed regularly to make sure they have flexed with your changing needs and position.
Is your will Inheritance Tax efficient? A well-worded will can ensure that you are making use of all the reliefs and exemptions that might be available on your death. We work closely alongside your legal advisors to make sure that your will is suitably tax efficient.
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Be early
If you’ve worked out what assets or income you don’t need, think about whether those who you want to benefit from your estate when you die are ready to receive gifts in your lifetime. Certain annual gifts are immediately outside of your estate, while others may need to be survived by seven years. But the earlier you make these gifts, the better chance there is that they will be out of your estate.
Over the last five years, changes to IHT have been discussed at a parliamentary level, so some may wish to be prudent and make use of certain lifetime gifts while reliefs still apply.
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Be cautious
Once you have gifted an asset away, it will be at the whim of your recipient to use (or dispose of) that asset as they see fit. You may also need to think through what would happen to the asset if the recipient were to later marry or divorce. If you have concerns that the beneficiaries of your estate are not ready to own assets personally, consider a trust to keep the funds safe, which usually offers a greater level of asset protection.
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Be happy
Finally, and most importantly, be happy.
You’ve spent many years working hard, accruing the value in your estate. You deserve to be happy and enjoy the fruits of your labour. Whether it’s that dream holiday that you want to go on, the round the world cruise or whatever it is you enjoy, just remember that if you have an exposure to Inheritance Tax, then whenever you make that purchase, you are getting a 40% discount, funded by the Chancellor – that’s 40p less of IHT they get for every £1 you spend.
While any potential beneficiaries of your estate (e.g. your children) may raise an eyebrow at your spending, I’m yet to meet a person that doesn’t agree life is for living and making the most of it.
If you’d like to talk through any of the above, or if you’d like to make an appointment to talk through your estate planning, please contact Mark Trevenna.
