Inheritance tax planning (IHT)

Without proper financial planning, the harsh reality is that HM Revenue & Customs could become the largest beneficiary of your estate following your death.

Inheritance tax is payable if your estate exceeds the nil-rate threshold, which will be fixed at £325,000 until 2021. As of 6 April 2017, each person now gets an additional £100,000 (rising to £175,000 by 2020/21) tax free allowance to use against the value of their home if it is passed to a direct descendant.

Is estate planning relevant to me?

Estate planning is not just for the wealthy. Largely due to the enhanced value of homes in the UK, it is predicted that £400 billion will be passed from grandparents to the next generation over the next 10 years, the majority of which will be above the Inheritance Tax threshold.

Your Fairstone financial planner will work with you to estimate your potential Inheritance Tax obligations and provide you with tailored advice on how to manage these requirements.

Inheritance Tax planning

Anything in excess of your nil-rate threshold is taxed at 40%. It is worth noting that anything left to either your spouse or civil partner will be exempt from Inheritance Tax, regardless of whether the value exceeds this threshold.

Anyone who is married or in a civil partnership may also be able to transfer any unused portion of their nil-rate threshold to their surviving partner.

While the nil-rate threshold of £325,000 may seem like a lot, once you take the value of your property into account it is highly likely that your estate will exceed the threshold. You will also need to remember that the rates and thresholds are based on current UK law and are subject to change.

The rules and exemptions around Inheritance Tax can change regularly and there are severe penalties for breaking tax rules. Professional financial advice can help you to reduce your tax lliability and ensure that your loved ones recieve the legacy that you have worked hard to create.

Sharing your wealth with loved ones

You don’t need to wait until after you have gone to share your wealth with your loved ones. You may want to help parents with their long-term care costs, support a child with a deposit for their first home or pay the education fees for a grandchild.

Individuals are entitled to give away £3,000 in total, each tax year, free from inheritance tax. This allowance can be backdated by one year, so where the full £3,000 is not used, it can be carried forward to the next tax year.

This means that a married couple could give away a total of £6,000 a year to their children without incurring Inheritance Tax (or £12,000 if the previous year's allowances were unused).

Any gifts exceeding these amounts will be classed as potentially exempt transfers. If the person dies within seven years of making the gift, Inheritance Tax will be payable on a tapered basis. If the person making the gift lives for longer than seven years, the gift becomes fully exempt from Inheritance Tax.

There are many other gifting options that your Fairstone independent financial adviser can advise you on including:

  • Small gift exemptions
  • Marriage and civil partnerships gifts
  • Maintenance gifts
  • Bequests
  • Trusts

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Wills, trusts & powers of attorney

Wills, trusts and lasting powers of attorney (LPAs) are the foundation of all inheritance and estate planning as they allow you to effectively plan your financial legacy.

In addition to ensuring that your estate is passed to your chosen beneficiaries in accordance with your wishes, advanced planning can ensure that the people you nominate are able to act in your best interests, both financially and medically, should it ever be required.

Long-term care

Did you know that if you have assets of more than £23,250 (in England and Northern Ireland), £30,000 (Wales) and £26,250 (Scotland) you would not be entitled to financial assistance from your local authority towards your care fees?

Latest figures reveal that the average weekly cost of a room in a residential home in the UK is £621, and a room in a nursing home cost £876.*

As we continue to live longer lives, the cost of long-term care is something we should all be thinking about. Professional financial advice can help you make provisions for your care costs in later life.

*According to Which April 2019