10 ways to help protect your assets

It’s your wealth. And quite naturally, you may want it to eventually be passed onto your loved ones. But without the right plans in place, a large part of your legacy could be liable for inheritance tax.

Inheritance tax has started affecting a lot more families over recent years. With inheritance tax revenue forecast to rise, it’s worth checking if it might impact your estate and what you could do. So your loved ones could ultimately receive a stronger inheritance.

Our video helps to explain some of the basics of inheritance tax planning including thresholds, what could be included in your estate and how you could potentially reduce your liability.

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There’s actually a number of options to help you protect and pass on more of your wealth. And make it clearer who you want your assets to go to.

1) Make a will

It’s very easy to set up a will, and it could help you make your wishes clearer and might result in a reduction in how much inheritance is payable on your estate. If you don’t have a will, you’re considered to have died ‘intestate’. Which means the law – rather than you – decides who inherits what. And that could cause a needless inheritance tax liability.

A will allows you to make your wishes known in terms of how your assets are distributed. It could be used to minimise any tax liability – to keep as much of your wealth as possible within the family.

2) Leave your home to a direct descendant

A big change to inheritance tax rules within the last few years is the roll out of the residence nil rate band. Each of us can now use up to £175,000 on top of our £325,000 allowance. It could be used to pass (all or a part of) a home you've lived in to a direct descendant.

3) Think about how you use your money

Money built up in a pension usually doesn’t count towards your estate. This normally means you can leave behind a pension without your loved ones paying inheritance tax on it.

  • If you keep money in your pension fund and you die before reaching age 75, then the remaining fund can usually be paid as a tax free lump sum to your beneficiaries.
  • If you died after reaching age 75, then remaining fund can be paid to beneficiaries but is treated as earned income when they receive it. They might choose to take the benefit when they are paying lower rates of income tax, eg. after they retire.
  • Overall this could mean that less is paid in tax than would be the case if the funds were part of your estate.

Thanks to the pension freedoms, you don’t have to use your pension to fund retirement. As strange as that sounds. Instead, it might be better to deploy other pots of savings to fund your lifestyle. That way, you are first using up funds that are likely to attract an inheritance tax liability, whilst retaining funds which might not be liable in future (eg pension funds).

4) Use your annual gift allowance

Each year you’re allowed to give away a total of £3,000 in assets or cash as a gift – free from inheritance tax. It’s completely up to you who the money goes to. As long as the gift doesn’t go over £3,000.

If you’ve not used last year’s gift allowance, you’re allowed to carry it forward and use that too.

5) Give smaller or one-off gifts

There’s lots of other gift allowances available. For example, you can give small gifts of up to £250 to different people each year. That would certainly make you popular at birthdays!

If a child, nephew or niece is getting married, you can give them a wedding gift of up to £5,000. There are some other gift allowances available too. But they can be complex, and financial advice might be needed to understand how they could work for you.

6) Leave money to a worthy cause

Is there a charity close to your heart? If you’re willing to donate at least a tenth of your estate, the government will reduce your inheritance tax rate from 40% to 36%. It’s a way of making a difference to a worthy cause and means any potential inheritance tax bill is lower. The part of your estate you donate to registered charity is also exempt from inheritance tax.

7) Use the seven-year rule

There’s nothing to stop you giving away larger amounts of your wealth to loved ones. But these gifts will only be completely free of inheritance tax if you live for at least seven years from the date you make them.

This can be quite easy to set up. Although if you're unsure the best approach for your needs, you might want to consider speaking to a financial adviser.

8) Set up a trust

We’ve talked a lot about giving your money to loved ones early. But for many good reasons, you might prefer to give this to them at a later date. Setting up a trust can allow you to start inheritance tax planning while retaining some control as a trustee over who can benefit and when. If the money is to be distributed at a later date then it can be held in a suitable investment until then. However, the rules are complex and you should seek financial advice.

9) Take out insurance

You may be able to cover the cost of the tax bill that may be due on your estate by taking out life insurance.

However, this may be an expensive option. Especially if you leave it too long to set up the cover.

10) Go on a spending spree

Not everyone believes in leaving behind a big inheritance. After all, it’s your wealth that you’ve built. But rather than leave it behind and at risk of inheritance tax, you could always spend it now. Make the most of your life’s hard work by treating yourself.

As the saying goes, you can’t take it with you. So if you’ve got a few items left on your bucket list, you might want to consider splashing out to fulfil them.

Action plan

Inheritance tax is an issue impacting more and more families – so don’t assume yours won’t be affected.

Our team of financial advisers are here to help you discover if inheritance tax is something you need to think about. If you want your family to inherit as much of your wealth as possible, we could advise you how to address any potential liability.

Important Information

Please remember that inheritance tax planning solutions may put your capital at risk so you may get back less than you originally invested. Inheritance tax thresholds depend on your individual circumstances and may change in the future. Some areas of inheritance tax planning are not regulated by the Financial Conduct Authority.

Get in touch

For more information on our inheritance tax planning service, and to find out whether you could benefit from financial advice, call our team today for a free initial consultation.

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