Inheritance Planning

You have worked hard all your life, stored up a nest-egg and own a nice home. When you die, who do you want it to go to? Your loved ones? Or the taxman?

It’s easy to assume that the final outcome is going to be as you have planned, but without keeping your will up to date and constantly reviewing legislative changes, it could be the taxman who becomes one of the primary beneficiaries of your estate. 

Basically, Inheritance Tax (IHT) is a tax on the value of your estate on your death amounting to 40 per cent on anything above your nil rate band threshold. This nil rate band is currently £325,000 for an individual, and has not increased since 2010, with currently no indication of any future increases.

For a single person, if you leave behind an estate worth £500,000, the tax bill will be £70,000 - that’s 40 per cent of £175,000 – the difference between £500,000 and £325,000. If you are married or in a civil partnership, within a will it is possible for the used allowances to be combined; so the surviving partner can benefit from an allowance of £650,000.

Whilst complex, and not granted in all cases, there is also the residential property nil rate band (RNRB). The RNRB started in April 2017 and from April 2020 it now stands at £175,000. When added to the standard IHT nil rate band, the RNRB will potentially allow individuals to pass on a total of £500,000 before IHT tax-free.

But this allowance only applies if you leave your home to a direct descendant; that is a child or grandchild. Nephews, nieces and friends, for example, will not qualify. Also note, that if your total estate is worth more than £2m, the extra allowance tapers off, falling by £1 for each £2 above the threshold.

Basically, IHT is complex! But there are ways of mitigating against it.

At Future Life Wealth Management, we believe you should be able to pass on as much of your wealth as possible. Through careful planning, sometime over prolonged periods of time, our financial planners can develop a financial plan which includes ways to mitigate and/or eliminate the tax burden payable by your heirs on your estate.

We also have links with local solicitors in the Sheffield and Derbyshire area to help you write your will.

If you want to know more about inheritance planning please contact us.