The Seven Steps Of Wealth Coaching - Step 7

Step Seven – Pass it on

If your finances are not set up correctly you are running the risk of your loved ones losing out when the inevitable happens and you pass on. Part of creating an effective wealth plan is making sure you can leave as much as you can to those you would like to have it. You don’t want most of your estate going to taxes if it can be avoided.

A bit of tax-efficient planning now and over the years as your circumstances change will make all the difference. Inheritance tax (IHT) is payable at 40% after any allowances for which you are eligible have been taken off. There are ways to manage your finances to reduce the amount of IHT your estate will be subject to, and a wealth coach can advise you.

Financial planning for Inheritance Tax purposes

1. Knowing and using your allowances

Your estate includes all assets that are owned solely and jointly by the deceased, including investments and money held in ISAs. There is a tax-free allowance of £325,000 called the nil-rate band (NRB). Anything above that is subject to inheritance tax at 40%. However, if more than 10% of the net estate is left to charity, the IHT rate can be reduced to 36%.

The amount of inheritance tax payable on death can be reduced by taking advantage of certain allowances, although if you are single and have no children the limit of £325,000 might stand. If you live in the south of the UK this might not be a significant amount given current property prices. One way to reduce IHT payable is gifting sums prior to death (up to £3,000 per year). If your main residence is left to a direct descendent an additional NRB is applied: the residence nil-rate band (RNRB), which is £175,000. However, for estates worth £2 million or more RNRB starts to be lost.

Ensure you take the current value of your home into account when you are planning for inheritance tax so that you can take the necessary steps to minimise your inheritance tax exposure sooner rather than later.

2. Business structure

If you have a business, it is vital to have it structured correctly, particularly if you plan to sell it. Without the right structures in place, you could lose money to IHT.

3. Legacies

You may have been left a legacy in a will that you do not need to use and therefore intend to pass on. If this is the case and you don’t plan accordingly it can be taxed at 40% twice.

4. Be prepared

Make sure that all the information your loved ones will need will be easily accessible in the event of your death. You may have various funds, accounts, trusts, and so on that will need to be dealt with properly or they will not be considered as part of the estate. Make sure you have left everything necessary to enable your executors to carry out their jobs quickly and with the minimum distress.

Paula Bicknell Wealth Management is always available to help you: we coach the seven steps of wealth planning. The rules and regulations around different instruments and options can be complicated so make sure you get the right advice: it will save you and your family time, worry, and money.

If you would like any further information or any help making the right decisions to ensure that you have your future financial security under control, please get in touch. Make sure you take advice from an expert wealth coach.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.