Estate planning is something I can help you with by giving you a top-down overview, pointing out the risks, costs and possible solutions. If you decide you want to look at it in more detail then I can put you in touch with a specialist to do that.
Inheritance Tax is a tax that’s levied on the value of your estate when you die. Your estate’s value includes your home and all your other valuable assets: any investments, cash, and possessions such as cars, interior furnishings, and heirlooms. The tax will need to be paid before your beneficiaries receive anything from your estate.
In most cases a person’s home is their most valuable asset, and its value will often exceed the threshold for inheritance tax, meaning tax will have to be paid before their beneficiaries receive their inheritance.
One way to reduce your likely inheritance tax bill is to plan ahead with the help of a financial advice to make sure that you have the money you need to live comfortably for the rest of your life, without jeopardising the gifts you want to leave to your beneficiaries.
Inheritance Tax is payable at 40 per cent on any amount in your estate that goes over the so-called nil-rate threshold of £325,000 (fixed until 2026), but there are ways to reduce this bill or make it more manageable.
If you are leaving your main residence to your children or grandchildren an additional Residential Nil Rate Band (RNRB) of £175,000 is added to the IHT allowance, giving a total allowance of £500,000. If a relative dies and their estate is worth more than £325,000 per individual or £500,000 (if the RNRB allowance applies), families are required to pay the amount in excess of the nil-rate band within six months.
Releasing money from your home will not in itself reduce the value of your estate. If it remains in your possession in savings or other assets, it will, of course, still be part of your estate.
Even if you gift the money to your family, it will be seen as remaining inside the estate by HMRC if you die within seven years of making the gift. A Potentially Exempt Transfer or PET is a way to move money outside of your estate and reduce the IHT burden over a period of seven years until it becomes fully exempt from IHT. This is something we can discuss in more detail when we meet.
Trusts can be a way of managing the amount of inheritance tax that will be due because in most cases, once money, investments, or property are put into a trust, you do not own them anymore and they will not count towards an Inheritance Tax bill. This is a legal arrangement where a trustee owns the assets in the trust and have a duty to look after and manage them. The beneficiary is the person who the trust has been set up for. When you set up a trust, you can set rules as to how it is managed.
As your independent adviser, and having an understanding or your unique situation, I can tell you more about the different types of trusts and their various rules to help you decide which is the best and most appropriate for you.
These are the main types:
Bare Trusts
Also known as a Simple or Absolute Trust, a Bare Trust holds assets on your behalf until you choose to take ownership of them.
Discretionary Gift Trusts
This popular trust allows you to specify how you would like your protected assets to be used.
Mixed Trust
A mixed trust blends features from more than one type of trust.
Trust for disabled beneficiaries
Also known as a trust for vulnerable people, this trust is aimed at putting assets aside for someone who is unable to look after the trust for themselves.
Non-resident Trust
A trust administered by non-domiciled trustees – ie those who are not resident in the UK for tax purposes.