As you spend time with your loved ones over this third lockdown period, think that most people only start to even think about inheritance tax advice when it’s too late. You need to decide what your wishes are for your family and how you can help them achieve their goals. This third lockdown period is the ideal time for reflecting on what plans you have for the future as these uncertain times to provide a time for reflection.

Cash flow modelling and good financial planning will help you look at this subject in a lot better light. It can fulfil your needs of knowing that upon your death then your legacy is taken care of.

So how much can you leave and mitigate as much of that 40% inheritance tax as possible?

  • You can give away up to £3,000 per tax year, which is immediately considered outside your estate
  • This can be carried forward by up to one tax year. A couple who have made no previous gifts could give away up to £12,000 within this rule
  • Gifts for Christmas, weddings or birthdays are also usually exempt up to certain amounts
  • Large gifts remain within your estate 7 years. But if you die within this period then IHT tax may apply
  • A cash flow model can be used each year to assess how much you can give away whilst not decreasing your standard of living.
Financial Modelling Shrewsbury

What about my pension and defined benefit pension?

Pensions are usually outside of your estate and not subject to IHT. The tax treatment of personal pensions upon your death is like this:

  • Before age 75, the full fund can be passed on to your beneficiaries, free of tax
  • After age 75, each beneficiary would be taxed at their own marginal rate on any money they receive. Although, they will have flexibility over how and when they draw the pension and can even pass it on to their own children, so the pensions that are left intact can pass down generations

In regard to other investments, it may be worth using these up first and leaving pensions intact. Pensions tend to have desirable tax breaks and they can be passed on without IHT as explained above.

With Defined Benefit or final salary pensions they can be different. A lot schemes offer a spouse’s pension (provided you have an eligible spouse within the scheme rules) and some of them will provide a lump sum upon death to the surviving spouse. A final salary pension offers valuable safeguarded benefits options. But passing money to beneficiaries other than a spouse is usually limited.

Talk to us at LG Embrey Financial Planning.

We are a firm of Independent Financial Advisers based in Shrewsbury. Please feel free to contact one of our Financial Planners if you would like to find out more about transferring wealth to your children or loved ones. We also serve clients in Shropshire and further afield throughout the UK.

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