Estate planning and Inheritance Tax. Protecting your wealth for future generations

Transcription

1 Estate planning and Inheritance Tax Protecting your wealth for future generations

2 Mayfair office, London ABOUT US Tilney Bestinvest is a leading UK investment and financial planning firm that builds on a heritage of 180 years. We look after more than 9 billion on behalf of our clients and pride ourselves on offering the very highest levels of professional client service, along with transparent and competitive pricing. Headquartered in Mayfair, London, we employ almost 400 staff across our network of offices, giving us full UK coverage, and we combine our awardwinning research and expertise to provide a personalised service to clients. Whatever approach you want to take, we can help. CONTENTS Through our broader Tilney Bestinvest group, we offer investment management and advisory services, as well as bespoke financial planning. If you want assistance with retirement and Inheritance Tax planning, for example, our nationwide team of experts is there for you. In 2015, the Financial Times and the Investors Chronicle voted us Stockbroker of the Year. If you prefer to make your own decisions, you ll find everything you need to make the most of your investments on our Bestinvest website. Readers of the Financial Times and the Investors Chronicle voted us Best 9 Managing Inheritance Tax without making gifts 3 Welcome 4 What is Inheritance Tax? 6 Making outright gifts Online/Execution-only Stockbroker and Best Self-select ISA Provider in 2015, and Your Money readers voted us Best Direct SIPP Provider. Despite our award wins, we draw greatest pride from the fact that our biggest source of new business is personal referrals from existing clients. We hope that we can help you and your family and we look forward to welcoming you as a client. Peter Hall CHIEF EXECUTIVE 10 We can help you with Inheritance Tax 8 Making gifts in trust Investment and Wealth Management Awards 2015 Winner Investment and Wealth Management Awards 2015 Winner Investment and Wealth Management Awards 2015 Winner Best Self-select Isa Provider Tilney Bestinvest Best Online/Execution-only Stockbroker Tilney Bestinvest Stockbroker of the Year Tilney Bestinvest Best Self-select ISA Provider Best Online/ Execution-only Stockbroker Stockbroker of the Year BEST DIRECT SIPP PROVIDER Best Direct TILNEYProvider BESTINVEST SIPP Best Low-cost SIPP Provider Best Wealth Mananger of the Year 2013 Wealth Manager of the Year The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This document does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. If you are in any doubt as to the suitability of an investment, please contact one of our advisers. Please note we do not provide tax advice. 2 Estate Planning and Inheritance Tax

3 Welcome Times have certainly changed since the 1980s when former Labour Chancellor Roy Jenkins uttered his infamous words: Inheritance Tax is a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue. However, the main principle of the statement remains the same that Inheritance Tax can be carefully managed, controlled, and minimised where possible. Every year HMRC receives billions of pounds in Inheritance Tax payments. April 2017 will see the introduction of the muchwelcomed additional allowance for passing on the family home, but even so Inheritance Tax remains a consideration for many people especially with rising house prices and the freezing of the nil rate band (see page 4). In this guide we explain what Inheritance Tax is and who pays it, then look at the different options you have when it comes to protecting your wealth for future generations. We ll also introduce you to our financial planning service and the different ways we can help you make the most of your money. tilneybestinvest.co.uk info@tilneybestinvest.co.uk 3

4 What is Inheritance Tax? Inheritance Tax is a 40% tax charge on any part of your estate that exceeds your personal allowance (also known as the nil rate band). Your estate is the combination of your property, savings and investments, other assets and any gifts you gave away in the seven years leading up to your death. The executors of your estate (as appointed in your will) are responsible for valuing your estate and completing an Inheritance Tax return when you die. They must also pay the Inheritance Tax bill within six months of your death otherwise probate (or confirmation in Scotland) will not be granted and the rest of your assets cannot be distributed in line with your will. WHAT 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, but for some people this will increase between 2017 and 2020 with the introduction of the main residence allowance (see page 5). Any unused allowance can be transferred between married couples and civil partners when they die, meaning you could potentially pass on up to 650,000 to your beneficiaries without paying any Inheritance Tax. HOW COULD AN INHERITANCE TAX BILL LOOK? Asset Without the main residence allowance (before April 2017) With the main residence allowance (after April 2020) Family home 550, ,000 Car 40,000 70,000 ISAs 150, ,000 Cash savings 75,000 90,000 Jewellery and other assets 10, ,000 Gifts (made within the last seven years) 25,000 5,000 Total estate value 850,000 1,100,000 Less nil rate band - 325, ,000 Less deceased spouse s nil rate band - 325, ,000 Less married couple s main residence allowance - 350,000 Estate value to be charged 40% Inheritance Tax 200, ,000 Total Inheritance Tax to pay 80,000 40,000 4 Estate Planning and Inheritance Tax

5 THE NEW MAIN RESIDENCE ALLOWANCE In July 2015, Chancellor George Osborne announced a new 175,000 allowance for passing on the family home. Any unused allowance can be passed between married couples or civil partners, as long as the second partner dies after April This means you could potentially leave 1 million to the next generation with no Inheritance Tax to pay. The new allowance will be phased in from April 2017 to April 2020 and will increase with inflation afterwards. However, it will be tapered down for people with larger estates the allowance will reduce by 1 for every 2 that your estate is valued over the 2 million mark. The additional allowance also only applies to the family home (not a second home or buy-to-let property) and can only be used when passing on assets to direct descendants. Estate planning a definition Estate planning involves passing on more of your hard-earned money to those you care about by reducing the amount of your estate that will be taken into consideration when your Inheritance Tax bill is calculated. There is no silver bullet when it comes to estate planning the best approach is often a combination of four different strategies: Making outright gifts Making gifts in trust Keeping your assets while reducing Inheritance Tax Managing Inheritance Tax without making gifts. Read on to find out more about the different options. tilneybestinvest.co.uk info@tilneybestinvest.co.uk 5

6 Making outright gifts We all want to provide for our families helping the children in our lives reach a point of financial security is a goal that many people share. We can help them get there for example, by paying university costs, providing a house deposit, or meeting the cost of a child s school fees. Gifting is often the most straightforward (and cheapest) form of estate planning. This can be for a specific purpose (as above), or a more general passing of savings on to future generations. Gifts can have different Inheritance Tax treatments depending on the value of the gift, when it was made and who it was given to. POTENTIALLY EXEMPT GIFTS Any gifts that are not immediately tax free would typically be considered potentially exempt. The reason they are only potentially exempt is because you need to survive for a minimum of seven years before the gift leaves your estate completely. If you die within seven years of making a potentially exempt gift it will count as part of your estate and there may be Inheritance Tax to pay on it. However, if you gave away more than the nil rate band then you could benefit from taper relief. This reduces the amount of Inheritance Tax over the seven years: How long ago was the gift made? 0-3 years No reduction 3-4 years 20% 4-5 years 40% 5-6 years 60% 6-7 years 80% More than 7 years By how much is the Inheritance Tax reduced? No Inheritance Tax to pay TAX-FREE GIFTS Certain gifts leave your estate immediately after being made, and are therefore free from Inheritance Tax: Gifts to your husband, wife or civil partner (as long as they live in the UK). Gifts up to the value of 3,000 a year (your annual gifting allowance). The 3,000 can be split between as many people as you like, and if you don t use it you can carry it forward one year for a maximum allowance of 6,000. Small gifts of up to 250. You can make as many of these gifts as you like but they can be no more than 250 per person. Regular gifts out of excess income, for example for birthdays or anniversaries. These gifts can only be made if they won t affect your normal lifestyle. Gifts to charities, museums, universities, sports clubs and some political parties. 6 Estate Planning and Inheritance Tax

7 HOW MUCH IS THE RIGHT AMOUNT TO GIVE AWAY? When making gifts there is often a trade-off between wanting to pass your savings on and keeping enough money to live comfortably for the rest of your life. This means it can be difficult to know how much money to give away. Our financial planners can use their years of experience and professional software to work out the long-term impact that any gifts could have on your savings and investments. Obviously we can t be certain about what the future holds, but we can make sensible assumptions and could show you how much you may be able to pass on. Speak to us on if you d like to find out how much money you could afford to give away. tilneybestinvest.co.uk info@tilneybestinvest.co.uk 7

8 Making gifts in trust Trusts make it possible to give financial gifts to others while keeping some control over the money. Usually when you set up a trust you can choose who receives the gift and when. With certain trusts you can also make gifts while continuing to benefit from the money in some way. Read on to find out some of the main uses of trusts when managing Inheritance Tax. MAKING GIFTS TO PEOPLE WHO CANNOT LOOK AFTER THE GIFT THEMSELVES One of the main benefits of trusts is the extra control that you get over the money. This can be useful if you want to make a gift to someone who would be unable to look after it for themselves. This could be for a range of reasons: They are too young They lack interest or experience in looking after money They are disabled or in ill health They are going through bankruptcy proceedings. In these cases it may not be ideal to give the gift directly. However, with a trust you could give the gift while keeping control over how, when and in what circumstances the recipient accesses it. MAKING GIFTS WHILE TAKING AN INCOME Some trusts allow you to give a gift but take an income from it through regular withdrawals. You can decide how much money you d like to withdraw and how often, but once the trust is set up you won t be able to change your mind. The rest of the money will be paid to the beneficiaries of the trust upon your death. Like most other gifts the money will remain part of your estate for seven years, but because you are making withdrawals from the trust the value of the gift will be discounted when it comes to your Inheritance Tax bill. The value of this discount depends on your age, health and the amount you are withdrawing. This is a complicated area so speak to a qualified financial planner if you d like more information on the rules or to find out how much your discount could be. KEEPING THE INVESTMENT WHILE GIVING AWAY THE GROWTH Another option is to loan an investment into trust and have any future growth paid to the beneficiaries. You can choose exactly when and who the growth will be paid to, and you are able to take the gift back at any time (although if the investment falls in value you won t get the full amount). The original investment will still count as part of your estate for Inheritance Tax purposes, but any future growth will belong to the beneficiaries and is immediately outside of your estate. This makes it an option for people who want to help the next generations but aren t yet ready to give away their money completely. 8 Estate Planning and Inheritance Tax

9 Managing Inheritance Tax without making gifts Many forms of estate planning involve making gifts to others so that the assets leave your estate. However, if you would prefer to hold onto your assets then there are several ways to protect your estate from Inheritance Tax while still doing this. CLAIMING BUSINESS PROPERTY RELIEF Investments or assets that qualify for business property relief leave your estate after just two years. You can continue to own them and sell them for your benefit at any time. You can claim business property relief on: A business or an interest in a business (such as being a partner) Land, buildings or machinery owned by a partner or controlling shareholder of a business Unquoted shares such as those listed on the Alternative Investment Market (AIM). TAKING OUT LIFE INSURANCE One of the simplest ways to protect your estate is to take out a life insurance policy that pays a lump sum to your beneficiaries when you die. They could use this money to settle the Inheritance Tax bill without the stress and upset of having to sell the family home or your other possessions. There are different types of life insurance but one of the simplest is a guaranteed policy. With this type of policy the premiums are fixed for the rest of your life, and your beneficiaries are guaranteed to receive a pre-agreed lump sum when you die. By their nature, investments that qualify for business property relief are usually complex so they tend to suit experienced investors who are prepared to take on more risk. There are several different ways to buy these investments, including through the Enterprise Investment Scheme (EIS). However, because of their riskier nature you should always speak to a financial planner before investing. tilneybestinvest.co.uk info@tilneybestinvest.co.uk 9

10 We can help you with Inheritance Tax We hope you have found this guide a useful and informative introduction to estate planning. We have covered some of the main things to consider when it comes to Inheritance Tax and estate planning, but remember that there is no one-size-fits-all option the right plan for you will depend on your personal circumstances. At Tilney Bestinvest we have a nationwide team of financial planners who can help you to with estate planning and Inheritance Tax. They will have an in-depth discussion with you about your aims for passing on an inheritance, and then create a personalised plan that suits both your current financial situation and wishes for the future. You can contact our financial planners over the phone, speak to them at your local Tilney Bestinvest office (we have more than 40 across the UK), or they can visit you at your home or workplace. After your free initial consultation, they will agree a fee with you and then begin work on your personalised financial plan. They can review your plan over time and make any changes to make sure that it continues to suit your needs and goals. HOW ELSE CAN WE HELP? Our expertise doesn t stop at estate planning. Our qualified financial planners have plenty of experience helping people from all walks of life make the most of their money whatever they want to achieve with it. Some of the other ways we can help you include: Investing for the children in your life Saving into your pension and taking an income in retirement Making the most of your tax-efficient allowances Reviewing and managing your investment portfolio Putting financial protection in place. Book a free initial consultation Would you like a free discussion with a Tilney Bestinvest financial planner? We would be happy to explain your options and tell you more about our service. You won t pay a penny and there is certainly no obligation to do business with us afterwards it s simply an opportunity to find out how we can help you. Call us on or info@tilneybestinvest.co.uk to book your free consultation today. 10 Estate Planning and Inheritance Tax

11 Your free financial planning guide You can find out more about our financial planning service in this free guide. Download it at tilneybestinvest.co.uk/fp or call us on if you would like your guide sent through the post. IMPORTANT INFORMATION The value of your investment and the income derived from it can go down as well as up and you can get back less than you originally invested. This document does not constitute personal advice. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. If you are in any doubt as to the suitability of an investment, please contact one of our advisers. Please note we do not provide tax advice. tilneybestinvest.co.uk

12 Liverpool office We have offices across the UK EAST MIDLANDS Ashby Leicester Kettering Northampton EAST OF ENGLAND Bedford LONDON Bromley Croydon Esher Holborn Hornchurch Mayfair NORTH EAST Darlington Newcastle NORTH WEST Altrincham Liverpool Manchester Preston South Lakes SCOTLAND Edinburgh Glasgow SOUTH EAST Basingstoke Farnborough High Wycombe Maidstone Oxford Reading Slough SOUTH WEST Bideford Bristol Exeter Swindon Trowbridge WALES Cardiff Newport WEST MIDLANDS Birmingham Hereford Tamworth Wolverhampton YORKSHIRE AND HUMBER Grimsby Leeds Sheffield The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No ), Tilney Investment Management (Reg. No ), Bestinvest (Consultants) Ltd (Reg. No ) and HW Financial Services Ltd (Reg. No ) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ. TBIIHT