Estate planning isn’t just about passing on money when you die – it’s also about enjoying life now and ensuring you have enough to live on. This is why it’s so important to start planning early. We can show you how much money you will need, help you to pass on assets in the most effective way, and work with you to reduce or manage an Inheritance Tax bill.

Passing on your assets effectively

Many people want to keep an element of control when passing on their assets. They may want their money to be used for a particular reason, such as paying for school fees or for a first house deposit. Or they may just want to make sure their money stays within their family. We can give you advice to ensure your money ends up with the people you want, for the reasons you choose.

We can make sure your money ends up with the people you want, for the reasons you choose.


Making financial gifts

There are many ways to give away money. They range from one-off cash gifts to gifting a regular income, and setting up trusts for long-term giving or where future control may be important. We can talk you through the options and help you to find the most appropriate choice. We can also help you to use your annual gifting allowances and navigate the potentially complex tax rules.

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Find out more about estate planning and Inheritance Tax in our guide.

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The residence nil rate band

The residence nil rate band is an additional allowance for passing on the family home. While the allowance gives couples the opportunity to pass on up to £1 million tax-free, it has also attracted criticism for a number of complex rules and conditions – including a reduced allowance for bigger estates. We can show you if your estate qualifies for the residence nil rate band, and may be able to recommend changes if it does not.

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How much can you afford to spend or give away?

Estate planning usually involves spending and giving away money, but some people hold back because they are worried about running out in later life. We can show you how much money you will need to maintain your lifestyle, while taking into account other potential expenses such as the cost of long-term care. For this reason we usually advise our clients on estate planning as part of a discussion about their wider financial planning.

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Managing an Inheritance Tax bill

Estate planning can save a huge amount of tax. Inheritance Tax is usually charged at 40% on anything above your nil rate band – so the potential tax savings can far outweigh the cost of advice.

Taking action early means more of your money going to your beneficiaries and less to the taxman. There are many ways to manage, reduce or eliminate an Inheritance Tax bill, including:

  • Making gifts
  • Using other assets to provide a retirement income and passing on your pension
  • Taking out a life insurance policy to cover the tax bill
  • Using tax-efficient investments to benefit from Business Relief

Passing on a pension

Pensions can play a big role when it comes to estate planning, as they aren’t included when your Inheritance Tax bill is calculated. If you can afford to leave your pension untouched while using other assets to fund your retirement, you could pass your pension on tax-free while gradually reducing the size of your taxable estate.


Reviewing your Will

Only a Will can ensure your plans come to fruition after you’re gone. The wording on your Will can also affect whether or not your estate will be eligible for the residence nil rate band. We can help you to identify areas for improvement and put you in touch with a specialist solicitor to help you make any changes.


Estate planning frequently asked questions

1. What is Inheritance Tax?

Inheritance Tax (IHT) is a tax charge (usually 40%) on any part of your estate that exceeds your personal allowance (also called the nil rate band). This is currently £325,000 per person. Your estate is a combination of your:

  • Property
  • Savings
  • Investments
  • Other assets, wherever in the world they are held
  • Any gifts you give away in the seven years leading up to your death
2. How much is the rate of Inheritance Tax?

Inheritance Tax is usually charged at 40%. The charge drops to 36% if you give at least 10% of your estate away to charity when you die.

3. What is estate planning?

Estate planning involves planning how to pass on your assets to the next generation in the most effective way.  A significant part of this will usually be minimising Inheritance Tax. This could be achieved by using allowances, making gifts, setting up life insurance or simply spending your money.

4. How much is the nil rate band?

The nil rate band is your personal allowance that is free from Inheritance Tax. It is currently £325,000 per person. Any unused allowance can be transferred between married couples and civil partners when one spouse dies.

5. What is the residence nil rate band?

The residence nil rate band is an allowance for passing on the family home. It is currently £125,000 (increasing to £175,000 by April 2020) and can be transferred between spouses and civil partners.

The allowance is tapered down for people with larger estates, reducing by £1 for every £2 that the estate is valued at over £2 million.

The residence nil rate band can only be used when passing on a residence to direct descendants and applies only to your home, not a buy-to-let property.

6. How can you make financial gifts?

This is often the cheapest and simplest form of estate planning. You can make outright gifts that are tax-free, or gifts that are considered potentially exempt. You can also make gifts in trusts which will allow you to keep control over your money as you can choose who receives the gift and when.

Deciding how to make financial gifts and how much you can afford to give can be difficult, so you could consider speaking to a financial adviser who can point you in the right direction.

7. What is a potentially exempt transfer?

Gifts that are not immediately tax-free are considered potentially exempt. If you die within seven years of making a potentially exempt gift, it counts as part of your estate and may be subject to Inheritance Tax.

8. What is taper relief?

If you made a potentially exempt gift that was bigger than the nil rate band, you could benefit from taper relief (also known as the seven year rule). This gradually reduces the amount of Inheritance Tax that is chargeable over the seven years after you made the gift.

9. What are the tax rules and allowances for making gifts?
  • The annual gifting allowance is £3,000 and you can split this between as many people as you like. If you don’t use it, you can carry it forward one year for a maximum allowance of £6,000
  • Gifts to your husband, wife or civil partner are tax-free if their permanent home is in the UK
  • You can make as many small gifts of £250 as you want, but one person can receive no more than £250
  • Regular gifts from excess income are tax-free, as long as they won’t affect your normal lifestyle
  • Gifts to charities, museums, universities, sports clubs and some political parties are tax-free

The rules can be complex so it is worth speaking to a financial planner if you have questions about making gifts.

10. How can passing on a pension reduce Inheritance Tax?

Any money left in your pension when you die does not form part of your estate, meaning it isn’t taken into account when your Inheritance Tax bill is calculated. Taking income from other sources in your retirement means you might be able to reduce the size of your estate (and future Inheritance Tax bill) while passing on your pension to your beneficiaries tax-free.

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