Ellis Bates Financial Advisers
Head of Estate Planning, Mark Chandler, discusses the services that Ellis Bates offer around Inheritance Tax planning services and making a Will.
For more information, please get in touch.
What will your financial legacy look like?April 2023 brought a host of changes to the UK’s tax regime, with some thresholds for taxes such as additional rate Income Tax being lowered while others, such as Corporation Tax, are increased.
However, the Inheritance Tax (IHT) nil-rate band has remained stagnant at £325,000 since 2009, despite the meteoric rise in property prices over the same period. This has resulted in an all-time high of £6.1bn being collected in Inheritance Tax in 2021/22.
Chancellor Jeremy Hunt announced in the Autumn Statement on 17 November 2022 that the government had frozen the IHT thresholds for two more years. As the threshold was already frozen until April 2026, it means that the threshold is now frozen until April 2028.
If you own a home worth over £1 million, there is a risk that your loved ones may face a costly IHT bill upon inheritance, due to the freezing of the nil-rate band. While there is an additional residence nil-rate band (RNRB) of £175,000 that can apply when passing on the property you lived in, married couples or those in registered civil partnerships can transfer the allowance, enabling most couples to pass on up to £1 million tax-free, assuming they pass on their home to their direct descendants.
However, if your total estate exceeds £2 million, the RNRB will be tapered. For every £2 by which your individual estate exceeds £2 million, the RNRB will be decreased by £1. Professional financial advice can help homeowners plan to mitigate the impact of IHT.
Downsizing is a popular method to manage IHT, but this presents the challenge of passing on the sale balance to your loved ones. Planning for the transfer of wealth to future generations can be an uncomfortable topic for many families. However, proper estate planning can ensure a smooth and stress-free transition of family wealth to loved ones.
It’s understandable that many people are feeling financially squeezed in the current climate, and as a result, we are likely to see a rise in ‘giving while living’. This refers to the practice of lifetime gifting to loved ones, particularly adult children who may be struggling to make ends meet during the ongoing cost of living crisis.
However, it’s important to note that the extended freeze on thresholds will mean that many people will now need to seek professional financial advice more than ever to protect their wealth and ensure that it is passed on according to their wishes, without being caught out by unforeseen taxes in the future.
We understand the importance of addressing these issues in a calm and objective manner. We can assist you in creating a comprehensive succession plan that maximises the amount of wealth passed down to future generations while minimising tax implications. Let us help you secure your family’s financial future with careful estate planning. To find out more, please speak to us.
Source data: [1] https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk/hmrc-taxreceipts-and-national-insurance-contributions-for-the-uk-new-annual-bulletin#inheritance-tax
Important information: This article does not constitute tax or legal advice and should not be relied upon as such. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. Inheritance tax and estate planning are not regulated by the financial conduct authority.
What is a trust?You may want to consider putting some of your assets into a trust for a loved one. Trusts are a way of managing wealth, money, investments, land or property, for you, your family or anyone else you’d like to benefit.
Bare Trusts are also known as ‘Absolute’ or ‘Fixed Interest Trusts’, and there can be subtle differences.
The settlor – the person creating the trust – makes a gift into the trust which is held for the benefit of a specified beneficiary. If the trust is for more than one beneficiary, each person’s share of the trust fund must be specified. For lump sum investments, after allowing for any available annual exemptions, the balance of the gift is a potentially exempt transfer for Inheritance Tax purposes. As long as the settlor survives for seven years from the date of the gift, it falls outside their estate.
The trust fund falls into the beneficiary’s Inheritance Tax estate from the date of the initial gift. With Loan Trusts, there isn’t any initial gift – the trust is created with a loan instead. And with Discounted
Gift plans, as long as the settlor is fully underwritten at the outset, the value of the initial gift is reduced by the value of the settlor’s retained rights.
With a Discretionary Trust, the settlor makes a gift into trust, and the trustees hold the trust fund for a wide class of potential beneficiaries. This is known as ‘settled’ or ‘relevant’ property. For lump sum investments, the initial gift is a chargeable lifetime transfer for Inheritance Tax purposes.
It’s possible to use any available annual exemptions. If the total non-exempt amount gifted is greater than the settlor’s available ‘nil-rate band’ (NRB), there’s an immediate Inheritance Tax charge at the 20% lifetime rate – or effectively 25% if the settlor pays the tax.
Flexible Trusts are similar to a fully Discretionary Trust, except that alongside a wide class of potential beneficiaries, there must be at least one named default beneficiary. Flexible Trusts with default beneficiaries set up in the settlor’s lifetime from 22 March 2006 onwards are treated in exactly the same way as Discretionary Trusts for Inheritance Tax purposes.
Different Inheritance Tax rules apply to older Trusts set up by 21 March 2006 that meet specified criteria and some Will Trusts. All post-21 March 2006 lifetime trusts of this type are taxed in the same way as fully Discretionary Trusts for Inheritance Tax and Capital Gains Tax purposes.
These trusts are often used for family protection policies with critical illness or terminal illness benefits in addition to life cover. Split Trusts can be Bare Trusts, Discretionary Trusts or Flexible Trusts with default beneficiaries. When using this type of trust, the settlor/ life assured carves out the right to receive any critical illness or terminal illness benefit from the outset, so there aren’t any gift with reservation issues.
In the event of a claim, the provider normally pays any policy benefits to the trustees, who must then pay any carved-out entitlements to the life assured and use any other proceeds to benefit the trust beneficiaries.
This is a type of Life Interest Trust and is incorporated into a Will for couples who jointly own the family home.
You can protect at least half of the value of the property by having it ring fenced in a trust so you can pass it onto your children or chosen beneficiaries when you pass away, whilst at the same time protecting the surviving partner’s lifetime interest in the property.
This a form of Immediate Post-Death Interest Trust incorporated into a Will. This trust allows you to give a chosen beneficiary a right to reside in a specified property either for their lifetime or for a specific time period.
Estate preservation and the transferring of wealth has become an important issue for many families today. We all have different objectives in life and need different strategies to help achieve them. That’s why carefully planning the financial affairs of your estate is essential to ensure that you can pass on the maximum benefit to your beneficiaries, which can have a significant impact on your loved ones’ futures.
Contact us to discuss how our Inheritance Tax planning services can help you start your estate planning journey.
There are several benefits to putting a Property Protection Trust in place. It allows you and your partner to own 50% of your property each, so when one of you passes their share can be passed to their chosen beneficiary, whilst protecting the surviving partner’s lifetime interest in the property.
If you would like to find out more about our inheritance tax planning services, then please get in touch.
You can establish a trust during your lifetime 0r; through your will, on your death. You can appoint trustees of your choice (this can include you and your spouse during your lifetimes) who will manage the trust on your behalf. Following your death, the trustees will act with consideration to your wishes.
Trusts offer several benefits:
You may also wish to reserve some influence over your assets for the trustees to observe after your death.
For example:
Trusts can also be useful in preventing assets reaching a beneficiary facing insolvency proceedings and those making poor lifestyle choices, such as involvement in alcohol and drugs.
Owning your home as tenants in common rather than joint tenants provide additional planning opportunities. This can potentially protect inheritance in terms of residential care fee assessment and marriage following bereavement.
A property protection trust is put in place so that the half share of the family home belonging to the first person to die passes into the trust (also known as a life interest trust). This allows the surviving spouse to benefit from the share of the house during their lifetime. Following the surviving spouse’s death, the property can then be passed on to either children or loved ones. By putting this trust in place, you are ensuring your assets are going exactly where you want them to go and giving you total peace of mind.
The benefits of a property protection trust are:
Please be aware that should the survivor remarry, not make a new will and then die, intestacy rules would see the new spouse taking a disproportionate amount of the estate. By severing the tenancy and creating a life interest trust in your wills (for the surviving spouse), this means your assets are going exactly where you want them to go and giving you total peace of mind. To preserve the residential nil rate band, property needs to pass to direct descendants.
For more guidance on the benefits of setting up a property protection trust and for more information on our inheritance tax planning services, please get in touch with us.
Estate planning isn’t only for the wealthy. There are various ways you can minimise Inheritance Tax like gifting or utilising pensions and trusts.
We can help select the right products for you and your family’s needs.
Ensure your money and assets go to the people and causes you care about.
For more information on our inheritance tax planning services, please get in touch.
Head of Estate Planning and Chartered Financial Planner, Mark Chandler, outlines our tax planning services including making a Will, trusts and probate.
Financial ProtectionEveryone should review their financial protection and estate plans. A solid plan will help you feel confident your family’s finances are secure.
The uncertainty of the past couple of years has shown how important it is to have a robust plan in place for securing your family’s finances. While no one knows what is around the corner, reviewing your protection, updating your Will and creating an estate plan will help you rest assured that the financial side of things is taken care of.
These are some of the main considerations:
It is essential to make sure that you have adequate protection in place, depending on your particular circumstance. There is no ‘one-size-fits-all’ protection solution so receiving professional advice is important when considering the right products for you and your family’s needs. This will ensure that your finances remain secure if illness or death happens unexpectedly, giving peace of mind to you and your loved ones at what could otherwise be a difficult time.
A life insurance policy is one of the most important types of protection to have in place. It pays out a lump sum if you die during the duration of the policy, helping your family to pay o% their debts, maintain their lifestyle or cover any other expenses they may have.
Critical illness cover can also provide valuable financial protection in case you are diagnosed with a specified serious illness while your policy is active. This type of cover will pay out a tax-free lump sum if you are diagnosed with an eligible condition, allowing you to concentrate on getting better without having to worry about bills piling up.
Income protection is also worth considering when developing your financial plan. This type of cover provides regular payments should you become ill or injured and are unable to work. This can help you cover your regular outgoings, such as mortgage payments or rent, while you recover.
Writing or reviewing your Will is essential for making sure that your wishes are respected and carried out after you pass away. It ensures that your money and other assets go to the people and causes you care about, such as relatives, family friends, charitable organisations, etc. Additionally, it provides you with the opportunity to appoint guardians for any children in your life, so they can be looked after by people you
know and trust.
If you don’t have a Will in place when death occurs, then the rules of intestacy will be applied to distribute your assets and possessions according to legal guidelines. These might not always align with what you would have wanted. Therefore, it is important to obtain professional advice on how best to proceed with making a professional Will. Doing so can help to ensure that your wishes are appropriately recorded and respected, even after you’ve gone. With the right professional advice and guidance, making a Will or reviewing your Will provides peace of mind that comes with having your affairs in order.
Creating an estate plan is a step that can make a significant impact on the financial futures of your children and grandchildren. Despite common misconceptions, estate planning isn’t only for the wealthy. In fact, due to rising house prices and the freezing of the Inheritance Tax (IHT) nil-rate band until April 2028, IHT could now be more impactful than before.
Fortunately, there are various ways in which you can minimise this unexpected burden, ranging from making lifetime gifts to utilising pensions and trusts. To get the most out of these options, it’s best to seek professional financial advice. We can help guide you as you build a comprehensive estate plan tailored specifically to your needs, to ensure that your family is well-protected and their financial futures are secured.
In uncertain times, receiving professional advice can help you feel confident you’re doing everything you can to secure your family’s
finances. We will look at your personal, family and financial circumstances to recommend the right solutions for your individual needs. You can focus on enjoying life today, safe in the knowledge that you’re prepared for whatever the future may bring. To find out more about our financial planning services or inheritance tax planning services, please contact us.
Time for a tax health check?With the current tax year having begun on 6 April 2022, the clock is ticking and it is important to utilise all the tax reliefs and allowances available to you before 5 April 2023 in order to minimise any potential liabilities.
Personal tax planning should be at the top of your agenda as the end of the current tax year is not too far away. Taking action now may give you the opportunity to take advantage of any remaining reliefs, allowances and exemptions.
At the same time, you should be considering whether there are any planning opportunities that you need to consider either for this tax year or for your long-term future. We’ve listed a few reminders of the issues you may want to consider as worthy of including in your 2022/23 tax health check to-do list.
Married couples should consider utilising each person’s personal reliefs, as well as their starting and basic rate tax bands. Could you make gifts of income-producing assets (which must be outright and unconditional) to distribute income more evenly between you both?
This is an especially tax-efficient way for you to make pension contributions, to save and reduce your Income Tax and National Insurance.
Have you considered exchanging part of your salary for payments into an approved share scheme or additional pension contributions?
Unless you are an additional rate taxpayer or have already accessed pension benefits then you are entitled to make up to £40,000 of pension contributions per tax year. Have you fully utilised your tax-efficient contributions for this tax year or any unused allowances from the three previous tax years?
A stakeholder pension is available to any United Kingdom resident under the age of 75. Children can also make annual net contributions of £2,880 per year, making the gross amount £3,600 regardless of any earnings. It is also a very beneficial way of giving children or grandchildren a helping hand for the future. Is this an option you or a family member should be utilising?
The Pension Lifetime Allowance (LTA) is currently £1,073,100 and has been frozen at this level until the 2025/26 tax year. The maximum you can pay in is £40,000 per annum unless you pay tax at 45% in which case the annual limit could be as low as £4,000. Inflationary increases by the end of the current tax year could also have an impact on your pension funds. Do you have a plan in place to protect your money from this?
If your are 55 or over you could access 25% tax-free cash from your Defined Contribution (also known as Money Purchase) pension pots and invest the rest. However, drawing large amounts in one tax year can lead to a larger tax bill than if spread over a longer period. Do you know the implications of taking money out of your pension pots?
Usually called a ‘spousal by-pass trust’, although the recipient may not always be a spouse, this is a discretionary trust set up by the pension scheme member or pension holder to receive pension death benefits. Are your pension death benefits written in trust?
An ISA allows you to save and invest tax-efficiently into a cash savings or investment account. The proceeds are shielded from Income Tax,
tax on dividends and Capital Gains Tax. The government puts a cap on how much you can put into your ISA or ISAs in any tax year (from 6 April to 5 April). The ISA allowance for 2022/23 is set at £20,000. Have you fully utilised the maximum annual allowance?
This is a long-term tax-efficient savings account set up by a parent or guardian, specifically for the child’s future. Only the child can access the money, and only once they turn 18. Have you invested the maximum £9,000 allowance for your child or children?
The Lifetime ISA (LISA) is a tax-efficient savings or investments account designed to help those aged 18 to 39 at the time of opening to buy their first home or save for retirement. The government will provide a 25% bonus on the money invested, up to a maximum of £1,000 per year. You can save up to £4,000 a year, and can continue to pay into it until you reach age 50. Could you be taking advantage of this very tax-efficient option?
There are two different rates of CGT – one for property and one for other assets. If your assets are owned jointly with another person, you could use both of your allowances, which can effectively double the amount you can make before CGT is payable. If you are married or in a registered civil partnership, you are free to transfer assets to each other without any CGT being charged. It is currently £12,300 but will be reduced to £6,000 from 6 April 2023 and £3,000 from 6 April 2024. Have you fully used your current £12,300 annual exemption?
IHT must be paid on the value of any estate above £325,000, or up to £1 million for married couples including the residence nil-rate band). However, certain business assets, including some types of shares and farmland, in private trading companies can qualify for 100% relief from IHT. The government has frozen the IHT thresholds for two more years to April 2028. Are you taking advantage of the reliefs available to you?
This allowance was introduced during the 2017/18 tax year and is available when a main residence is passed on death to a direct descendant. The allowance is currently £175,000. When combined with the nil-rate band of £325,000, this provides a total IHT exemption of £500,000 per person, or £1 million per married couple. If you are planning to give away your home to your children or grandchildren (including adopted, foster and stepchildren) the RNRB must be claimed. There is a form for this purpose – IHT435. The form is available on the Gov.uk website. If applicable, have you applied for the RNRB?
If you leave at least 10% of your net estate to charity a reduced inheritance rate of 36% applies rather than the usual 40%. Other exemptions apply for inter-spousal transfers, transfers of unused annual income, business and agricultural assets, and for various other fixed, small amounts. Are you intending to make gifts before the end of the current tax year?
These help protect your assets and guarantee that your loved ones have financial stability for their future. Crucially, a trust can help to avoid IHT and ensure that the majority of your money, shares and equity are passed on in the most efficient way. Should you consider setting up a trust? Future legislation could potentially result in changes to tax law, which could in turn require adjustments to your plans.
We hope you find this checklist useful, but please bear in mind that this only provides a summary of the options available and not all options will be suitable for everyone. Therefore, for more information in respect of the ideas outlined, please contact us.
A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The value of your investments can go down as well as up and you may get back less than you invested. The financial conduct authority does not regulate taxation and trust advice. Trusts are a highly complex area of financial planning.
Due to rising property prices more of us are falling into the IHT liability category
You can pass your assets to your partner IHT-free (in most cases)
With thousands more households now falling into the inheritance tax liability category, it is important that you have a conversation sooner rather than later
Your estate consists of everything you own including:
To find out about our Inheritance Tax planning services, please get in touch.