How to make sure your wealth is passed on to your family

Retirement PlanningAsset Managementexpats

Often, HMRC becomes an additional beneficiary of your Will due to a lack of financial planning when organizing how your wealth is set up. For those with significant assets, this is an avoidable tax where your loved ones can be the true beneficiaries of your estate.

Part of your estate can be passed on tax free using the individual allowance (Nil Rate Band), currently set at £325,000. Over this, the tax is set at 40%. In addition to this, there is a ‘main residence’ band for an individual or couple to pass on a home to their children or grandchildren. This is currently set at £125,000 and will increase by £25,000 each year until it reaches £175,000 in 2020. Due to this, it will be possible for a couple to pass on a home to their children or grandchildren worth up to £1 million tax free from April 2020. This however, can only be used on your main residence and cannot be used for property portfolios.

As a UK national, IHT is payable on global assets which include property, cash and investments, vehicles, jewelry and art, and payouts from life insurance policies not written in trust. It can also include some business interests although Business Property Relief is available in some instances.

There are various ways of avoiding Inheritance Tax and forward planning is key.

  1. Making a Will

Making a Will is the first step in managing your estate and ensures that your assets pass on to those you wish in the event of death. Failure to make a Will can cause excess IHT to be paid and means that the way in which your assets are distributed is laid down by law rather than your wishes

  1. Gifting

Gifts made more than 7 years before death are usually free of inheritance tax providing you have not benefitted from them during this time. If the gift is significant (i.e. more than the nil rate band of £325,000) then within 4-7 years of death, a reduction in tax is still possible.

  1. Using annual allowances

Utilising your annual gifting allowances can also help. You can gift £3,000 in any one year to an individual and make any number of £250 gifts to as many people as you want. You can also make gifts in consideration of marriage (£5,000 to children, £2,500 to grandchildren and £1,000 for anyone else)

  1. Making gifts out of excess income

Another concession is that you can give away any excess income as an allowable payment. To ensure this is effective, it is advisable to keep accurate records of payments made together with an annual income and expenditure statement confirming this.


  1. Putting assets into Trust

For some, giving away large parts of their wealth and losing control over this capital makes them uncomfortable. Transferring the assets into trust, whilst still qualifying as a gift away for IHT purposes, leaves you, as the settlor, in control of the assets, where these are invested and, ultimately, when the beneficiary receives the money.

Usually, to be effective as a gift, you are unable to receive any benefit from the asset once in trust but, in certain cases, it is possible to set up a lifetime income from the assets in trust whilst still benefitting immediately from an IHT saving which increases to the full 40% after 7 years.

  1. Leave to Charity

If you include a registered charity as a beneficiary of your Will, you avoid IHT on this amount.

  1. Spend it

Clearly, if you have spent your full working life building up your wealth, there is little point in living on a tight budget in retirement so that HMRC will ultimately benefit. Enjoy your wealth whilst you are retired and remember that every £100 you spend could ultimately save £40 in tax!!

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