When people consider Inheritance Tax (IHT) planning there are a number of simple steps that should be taken to ensure that their financial affairs are in order. First and foremost they should have an up to date Will that reflects their current wishes and provides for their family and dependents. A Will does not need to be complicated or expensive but it is recommended that professional advice is sought. A Will should be reviewed at least every three years or when there are life changing events such as having children or becoming a grandparent. It is also important to remember that getting married will make an existing Will invalid unless the Will has been prepared in contemplation of that marriage. It is also important that at least one person knows where your Will is as the absence of a Will will mean that an individual will be held to die intestate whereby family and dependents may not benefit from the estate.
Second, a review of an individual’s financial affairs should be undertaken periodically to ensure that they are structured in order to mitigate IHT. With careful planning and speaking with an independent financial adviser it is possible to shelter ones assets from IHT (well at least in part).
Some IHT planning tips include:
1. Have life policies written in trust (so that they bypass the individual’s estate on death).
2. Make use of the nil rate band (currently £325k) by transferring assets into trust. This can be done every seven years and the individual can still benefit from the assets.
3. Make regular gifts out of income but not so that this would be detrimental to the donor’s standard of living. This is in addition to the annual £3k gift exemption that can be made (and carried forward for one year so that a maximum of £6k can be made in one year).
4. Parents and Grandparents making gifts on the occasion of marriage of children/grandchildren (£5k and £2.5k respectively).
5. Invest in business assets that are exempt from IHT.
6. Consider whether any post death variations to a will can be made to avoid IHT.
7. Be married/in a civil partnership to your partner as any gifts to them in a will are exempt from IHT.
At the same time as reviewing a will and financial affairs, individuals should consider registering a Lasting Power of Attorney (LPA), one for their property and financial affairs and another for their health and welfare. Without a registered LPA, the State will effectively take control over an individual’s affairs until such time that a friend of family member is appointed as a deputy. This is not an immediate process and in the meantime a stranger will be responsible.
It is important to remember that some people do not want to reduce the amount of IHT payable on their death. However, they will need to consider the impact that IHT can have on their family especially during the period following the death of a loved one particularly if that individual is the breadwinner.
Howard Harris Willu?
If you are thinking about making a will or need some help with an existing will please call Howard Harris on 07779 664 382.