One way of ensuring that your loved ones receive assets is to pass them over while you’re still alive. However, this needs careful thought as you may not want to relinquish control and you need to make sure you keep enough yourself to live off – a difficult balancing act.
The first stage
As a starting point, you need to value your estate, including your home, other property, shares and investments, money and savings, business assets, cars, jewellery and other personal possessions. From this, deduct debts and liabilities, including your mortgage, bills, loans, credit cards, overdrafts, and funeral expenses.
Make your wishes known
Successful estate planning includes having a valid Will in place and establishing trusts which manage money or other assets on behalf of beneficiaries. Trusts can give you control over who receives what and when.
It is also a good idea to set up lasting powers of attorney (LPAs), covering ‘health and welfare’ and ‘property and financial affairs’ at an early stage.
Inheritance Tax (IHT)
Estate planning can be used to reduce the amount of IHT payable, enabling you to pass on more of your assets. The current IHT nil-rate threshold is £325,000 for individuals and £650,000 for a married couple or civil partners. Any unused portion of the nil-rate band can be passed to a surviving spouse or civil partner on death. IHT is usually payable at a rate of 40% beyond these thresholds.
A main residence nil-rate band (currently £175,000) may also apply if you want to pass your main residence to a direct descendant.
If you have surplus income, you could consider gifting money to the next generation. Professional advice on the current rules is recommended, to ensure gifts are made in the right way to qualify for relevant exemptions, so that IHT is not chargeable on them later unless the rules change.
Help with your estate planning
Our advice will help you to pass on your assets to the people you want, in the most effective and tax efficient way. The Financial Conduct Authority do not regulate estate planning.
Earlier is better for ISA investors
Investing in an ISA is a great way to build up your savings. Research (3) looking into the savings habits of hypothetical stocks and shares ISA investors has demonstrated that the earlier in the tax year you invest, the better off you’ll be.
According to the report, based on the performance of the FTSE All-Share Index, ‘Early Shirleys’ who have invested their full ISA allowance on the very first day of the tax year for the past 20 years would be £12,000 richer than ‘Last Minute Laras’, who waited to invest until the end of each tax year.
The study also looked at ‘Monthly Monty’, who has invested according to a monthly savings plan. By paying in regular instalments, he would also reap better returns than if he’d invested at the last minute. Splitting your investments in this way over the 20-year period would still leave you £7,496 better off than a ‘Last Minute Lara’.
If you would like to chat about any of the above topics, please get in touch.