Conversations about money are rarely easy or straightforward, particularly when family is involved. Despite this, it’s important for your clients to start talking about passing on wealth early in life so that they can begin to organise their assets before it’s too late.
Inheritance Tax (IHT) planning is best approached as a continuous process. It’s a good idea to review a client’s plan regularly to make sure it’s appropriate for them and reflects any changes in their family, as well as the latest laws and regulations.
To help you and your clients, we’ve created “Keep it in the family” – a detailed guide to the various reliefs available for mitigating IHT. Download the guide or read on for a flavour of this new IHT guide.
Ways to pass on wealth efficiently
Many people leave an IHT liability on their estate after they die. Without proper planning, a client’s family could face a significant tax bill – potentially 40% on the value of their estate – at what is already a difficult time.
Our guide details some of the many ways to make sure your client does not pay more IHT than is absolutely necessary.
One of the most effective methods of reducing the eventual IHT liability is to give away cash or assets when still alive.
These gifts are often considered potentially exempt transfers (PETs). Note the use of the word “potentially”, as gifts made in this way could still be subject to IHT if the gifter dies within seven years of making them. For full details, please read our guide.
Your clients can also make certain gifts that will fall outside their estate for IHT purposes. These include:
- Gifts to a spouse
- Gifts of up to £3,000 a year
- Additional small gifts of up to £250
- Wedding gifts
- Gifts to registered charities
- Gifts from surplus income.
There are sometimes complex rules – particularly when it comes to “gifting from income” – and so it can be constructive to seek professional advice.
Passing on a property to children
The “residence nil-rate band” enables an individual to leave their main residential property to their children or grandchildren, and increase the threshold at which IHT becomes due by £175,000 to £500,000.
Why it is important to make a will
Recent research from insurer Canada Life found that 29.6 million adults in the UK don’t have a will. Writing a will really is the only way of making sure that a person’s assets go to their intended beneficiaries when they die.
For example, if you a client has an unmarried partner and they die without a will, the partner may receive none of their assets under the intestacy rules.
A will can also help to reduce IHT. For example, if your client leaves their home to a child or grandchild, they can take advantage of the residence nil-rate band as above.
A trust is an arrangement whereby a person appoints certain individuals, known as “trustees”, to manage assets on behalf of their beneficiaries after they die.
Trusts can be an excellent way of passing on assets and mitigating IHT issues. However, seeking advice is important as the rules can be complex.
How to mitigate the effects of IHT using life insurance
Although there are several ways to reduce an estate’s IHT liability, your client may still leave behind a significant tax bill. Another valuable strategy they can use is to put life insurance in place to cover the liability.
John Lamb Hill Oldridge specialises in advising high net worth and ultra-high net worth individuals on IHT planning, placing particular emphasis on how putting in place appropriate life insurance can help in this respect.
We have helped many families mitigate their liabilities using a variety of tried and tested approaches.
In this blog, we’ve touched on some of the ways your clients can mitigate IHT. To read our more detailed guide, please download “Keep it in the family” – our guide to the various reliefs available for mitigating IHT.
Whether your client is looking to manage their IHT liabilities for the first time or review their existing plans, we will be happy to explain what we offer and provide as much detail on our company and services as they need.
Meetings can be held at our office in London, at a location to suit your client, or online. If you would like further information or to arrange an initial conversation, please email [email protected] or call 020 7633 2222.
The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.
Life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.