Inheritance tax insights for senior educators

Specialist Financial Adviser from Wesleyan Financial Services, Deborah Cardona, discusses what head teachers and senior education leaders need to be aware of when it comes to IHT planning.

Senior leadership roles within schools and Academy Trusts are often well remunerated. However, such positions usually come with a high level of responsibility and a heavy workload, making it difficult to balance the demands of the job and home life, with financial planning. Without strategic planning, it can be all too easy to fall into the Inheritance Tax (IHT) net and potentially leave a tax liability in the future to those you leave behind.

Under the current rules, your estate will be subject to IHT if, when you pass away, it exceeds the individual nil-rate band which currently stands at £325,000. The standard IHT rate is 40% and is only charged on the part of your estate that’s above the threshold.

The IHT threshold has been frozen at £325,000 until 2030, making it likely that HM Revenue and Custom’s IHT receipts will continue to rise every month.

From April 2027, when the current IHT exemption for money left in pensions on death is set to close - meaning that any unspent pensions will form part of your inheritance taxable estate - we can expect to see an increase in the number of estates that will fall into the IHT net. This is something that will also pull more people who may not have previously considered themselves as well-off enough, to fall into the IHT net.

Have you considered inherited funds?

Many high earners may already have started thinking about the potential IHT implications on their estate, but what about any inherited funds?

Generally speaking, it is probably fair to assume that people in their mid-forties and above, are more likely to inherit funds from their parents or relatives. Inherited funds can be substantial and those on higher income brackets are likely to already be building their own estates, with assets such as a good house price value and a sizeable pension, for example. Any inherited funds on top of this, then presents the challenge of what to do with that money.

What are the right financial priorities for any inherited funds? Should they be used to pay off a mortgage? Should some money be put aside for further education fees for children? Or towards a house deposit for adult children? Should it be saved for your own retirement or should it be invested? Depending on circumstances it might be useful to split the funds into different pots for different objectives.

There are all kinds of questions surrounding what to do with inherited funds and potential avenues to explore, but there is also another important consideration, and that is, what are the ramifications for your estate, long-term? Will any inherited funds create an IHT problem when added to your estate?

There are many potential options when it comes to reducing your IHT liability, including, gifting, trusts, reviewing your existing arrangements such as Wills, and insuring the liability. The likelihood, however, is that a combination of these steps may be appropriate.

This is where professional input can be useful. A specialist financial adviser can assess your individual circumstances as a whole, taking into consideration your plans and aspirations for the future, to put you in an informed position regarding your options and help to reduce any IHT liability.

If you would like support or guidance on understanding your financial position, speak to a Specialist Financial Adviser at Wesleyan Financial Services. Charges may apply.

Please bear in mind that advice in relation to inheritance tax planning is not regulated by the Financial Conduct Authority.

Tax treatment depends on individual circumstances and may be subject to change in future.