A key part of any financial plan is to think about what will happen to your wealth when you pass away. For many clients, inheritance tax is a big focus, but there are a lot of other important considerations. These are the top 5 areas which come up regularly for our clients:
- Reducing or eliminating Inheritance tax (IHT)
- Having the cash available to pay Inheritance Tax
- Using wills to make sure beneficiaries receive the legacy you envisage, at the right time
- Protecting beneficiaries and the inheritance they receive from different types of risk and harm
- Choosing suitable trustees and executors
For many people, the most significant tax of all will apply on death: inheritance tax. Although some of your wealth is protected from inheritance tax, the rest is taxed at 40%, significantly reducing any legacy you might be planning to leave to family and friends. This makes inheritance planning one of the most impactful areas in which we give advice.
Fortunately, there are lots of ways to reduce or mitigate inheritance tax, ranging from simple (with a small impact) to more complex (with a bigger impact). Striking a balance between looking after yourself whilst you’re alive and ensuring you have enough, whilst also thinking about what you’d like to leave to those closest to you after you’ve gone, is a thin line to tread. Equally, timing is important, because some planning can take several years to be effective.
However, inheritance tax is by far from the only consideration when we are thinking about inheritance planning. For some people, the focus is on preparing their financial affairs to make them as simple as possible for their executors when the time comes. We often help create a summary of their important documents and contacts for their families to refer to.
For other clients, their focus may be on fulfilling their vision of leaving a legacy to a charity or academic institution that would make a difference to the wider community when they’ve gone. They may even be considering creating their own charity.
There’s a lot to think about, with many emotions involved, people to consider and choices to make. Talking to a financial planner is a good first step to ensure your wishes are understood, and the appropriate documents are in place. They can also help you understand your current financial position and what you can afford to leave behind. By planning your legacy now, you have the opportunity to put some great structure in place, that your family and friends will thank you for later.
Understanding your priorities
Our planners are trained in life planning and can help you get to the bottom of what you really want out of life and beyond. Before they even talk about your wealth, they first have to understand your goals and objectives, getting to the crux of what really matters to you.
With blended families, businesses, and changing relationships, everyone has different things to consider when it comes to inheritance planning and passing on their wealth. But one thing is the same, it’s never too early to start planning, but it could be too late if you leave it for too long.
They’ll talk you through the important questions you need to ask yourself, like:
- How much do you need for the rest of my life?
- Are you comfortable with giving away any of your wealth during your lifetime?
- Do you need to retain control over your gifts?
- Who do you want to benefit? And when?
- Are there any charitable causes you care deeply about?
Understanding inheritance tax and inheritance tax thresholds
Our highly qualified planners can help you understand the complexities of inheritance tax (IHT). Simply put, IHT is the tax you pay on most of your assets and possessions when you die. It’s charged at a rate of 40% on the value of your estate above the tax-free nil rate bands applicable at your time of death, although there can be some exemptions. Anything left to your spouse is usually free of IHT.
There are ways in which you can reduce the amount you pay, such as gift exemptions, trusts and life insurance, to name a few. However, there are often things you should consider first, and that’s where a financial planner can help.
Inheritance planning for business owners
If you have a business, then you will need a succession plan. Often busy with the day-to-day running of your business, this can be forgotten about and pushed to the bottom of a very big pile of things to do.
Unfortunately, many business owners believe the generous Business Relief will apply automatically on death, and the value of their business will be exempt from IHT. But as with any inheritance planning, it’s complicated and not all businesses qualify.
First and foremost, you should ensure you have a will in place. And this doesn’t apply to just business owners! Beyond that, you need to think about what you see happening with your business. Will it pass on to your family? Do they have the capabilities or time to continue to run it without you? Do your fellow shareholders want to buy your shares when you pass away, or do you want them to pass to your beneficiaries under your will?
Getting your family involved
Inheritance planning might feel incredibly private to you. And for your family, it might not be something they want to consider either, as life without you isn’t something they can or want to comprehend. But often, starting a conversation with your family during your lifetime can make things easier in the long run.
Introducing your family to your financial planner whilst making plans will make them feel part of the conversation. They will understand your wishes and know how to prepare for the eventual transfer of wealth.
We’re here to help you with all your inheritance planning needs and will support you in making informed decisions on passing on your wealth effectively.
What our clients say
We had a five year plan to retire which we started to suspect could be shortened, we just didn’t know how or by how much.
Rebecca looked our finances over and brought our retirement date forward by a bit over four years while maintaining our standard of living and giving us absolute confidence for our financial future.
The approach Balance Wealth take is both logical and understandable to non financial people like us, and Rebecca has a knack of making financial concepts easy to understand by explaining them without resorting to financial terminology. The whole experience was actually quite enjoyable and completely painless.
I wanted to retire early and was having difficulty finding a financial adviser who would help me for a fixed fee rather than a percentage of my pot.
Rebecca produced financial analysis reports that way exceeded my expectations and explained what I needed to do each step of the way. This was done for a very reasonable fixed fee and she saved me many thousands of pounds compared to alternatives.