If you’re covering inheritance tax planning, please see the following comment from Alec Collie, Head of Medical at Wesleyan Financial Services:
"Inheritance Tax only affects a relatively small proportion of UK families, but it makes a significant and growing contribution to the public purse.
"The tax-free allowance has been fixed at £325,000 since 2009/10 and the Chancellor announced in his last Budget that it will be frozen for another five years, until April 2028.
"The main residence nil rate band – which exempts up to £175,000 of the value of a property that’s being left to direct descendants – is also frozen until 2028.
"This will inevitably mean that more and more estates are eligible for the tax as their value, including assets such as money, property or shares, exceeds this amount.
"It makes it even more important that families plan for the future, to make sure their arrangements are as tax efficient as possible.
"It’s a complex area to navigate, so it’s always worth taking advice when considering your arrangements. Here are three things that I discuss with clients when it comes to making intergenerational wealth transfer more efficient:
Put it in a pension
"Another announcement made by Jeremy Hunt in his latest Budget was to increase the Annual Allowance – the amount of money that people can put into their pension every year without paying tax on it – from £40,000 to £60,000.
"The Lifetime Allowance is due to be scrapped from April 2024 too. Though this plan hasn’t been finalised yet, the LTA Tax Charge on pension savings in excess of the LTA has already been abolished.
"Crucially, money in a pension is exempt from Inheritance Tax.
"However, there is a twist; where a 55% charge was previously levied on amounts exceeding the Lifetime Allowance, the beneficiaries will now be taxed at their marginal rate of Income Tax.
"And be aware that some pension plans are not exempt from Inheritance Tax, such as the Teacher’s Pru AVC scheme, older Section 226 Retirement Annuity Contracts and Section 32 ‘buyout’ plans."
The gift of giving
"Giving money or assets to your beneficiaries while you’re still alive is one of the most common ways to pre-emptively reduce inheritance tax liability.
"Not all gifts are exempt, so it’s worth getting advice first, but you can give a gift of any value to a spouse or partner, or gifts of up to £3,000 to any individual in any one year.
"You can also make regular payments out of your income, which can help stop the value of your estate increasing beyond the tax-free allowance, as long as you have enough left over to fund your normal lifestyle.
"Remember that gifts given less than seven years before you die may be taxed, depending on who you give the gift to and their relationship to you, how much the gift was and when the gift was given."
Tried and trusted
"A discretionary trust is a legal arrangement where your assets are held by a trustee or group of trustees for the benefit of a beneficiary.
"It means the assets technically don’t belong to you anymore, so they aren’t counted as part of your estate when you pass away, reducing inheritance tax liability, but you can still control how and when the money is paid out.
"But there are many types of trusts and some trust arrangements do allow access to the original funds.
"It’s a complex area, so proper advice should be sought when making these arrangements."
For more comments from Wesleyan, contact our PR Manager, Nicola Pledger.