Think of yourself first
Once you’ve made a will, set your future income expectations. Assess your lifestyle and health, and don’t forget to account for inflation.
Appraise your assets
Appraise your assets to see if you’re on course to meet your income targets. You need to thoroughly assess everything, including pensions, properties, ISAs, businesses and dividends.
Work out how much is left
If you’re on track to achieve your desired lifetime income, the next stage is to establish whether there’s extra to pass on. The sooner this is done, the better.
Work out how much to leave behind
If there’s surplus capital, decide when and how much money to leave. There are a range of IHT planning opportunities but these come with different rules, time constraints and obligations. Your personal situation will determine which will work best.
Think about giving
You can give money to the next generation, and if you live seven years from the date of the gift, this will be fully outside your estate for IHT purposes (tax relief may be available for death within seven years). There’s also an annual gifting exemption of £3,000 per annum that can be used along with other small exemptions – a financial planner or tax adviser can help you with this.
Think about establishing a trust
If you have concerns about your beneficiaries’ abilities to manage gifts – they might be too young or you are wary of other family members accessing the money – think about a trust. Trusts can be complex and onerous to manage if you choose to be a trustee, though. Your adviser can help to find the best options available and choose professional trustees to act on your behalf.
Consider business property relief (BPR)
Giving money away means it’s no longer under your control. An alternative is to invest in BPR shares. To qualify for IHT exemption, BPR shares can’t be listed on a stock exchange. BPR shares also tend to be higher risk. Their values can fluctuate significantly and there may not be a readily-available buyer, so you should speak with a professional adviser before investing.
Whole of Life Insurance
Insurance can help to cover the IHT bill. Buying a Whole of Life Insurance policy is no more complicated than taking out a normal life insurance policy, except you request the pay-out go into a trust so it’s exempt from IHT. The pay-out can then be used to cover the IHT bill on your estate, which means your beneficiaries may not have to sell your home nor stump up to cover the tax on gifts you may have given in the last seven years. It’s important to get professional advice to ensure there are no additional tax implications and that the policy is paid as per your wishes. Barclays doesn’t offer personal tax advice.
Protect your pension
Maintaining your money purchase pension pot is another way to keep the taxman from taking your family’s inheritance. Unlike ISAs and other savings vehicles, pensions are not normally subject to IHT and can be passed to loved ones on death. Spending down other taxable areas of your estate before calling on your pension makes sense.
Diversify your options
Whichever route you choose, remember the rules can change and sticking to one course of action may prove risky. Consider combining a range of IHT planning approaches to cover yourself. Talking regularly to your professional adviser will ensure your family receives a full and lasting legacy.
Learn more about our estate planning or discretionary trusts by speaking to your wealth manager.
Barclays is not providing you with financial, legal or tax advice, so nothing contained in this article should be construed as constituting legal, financial or tax advice. Tax rules and legislation can change and the benefits and drawbacks of a particular tax treatment will vary with individual circumstances. We recommend that you take professional advice where required. You have sole responsibility for the management of your tax, financial and legal affairs, including making any applicable filings and payments, and complying with any applicable laws and regulations.
Barclays Wealth Management