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Peace of Mind in Later Life – Part 3:  Why it makes sense to get your affairs in order before this autumn

06.04.20

In the first part of this series, our blog on Lasting Powers of Attorney considered what needs to be put in place in case we should lose the ability to make our own decisions.  In the second blog post of the series we looked at what measures you can take to limit the amount of tax payable when we die.

In this, the third blog in this series, we want to urge families to consider getting certain things in place before the 2020 autumn budget.

At the time of writing, the Covid-19 pandemic is causing enormous amounts of uncertainty both socially and economically.  Whilst we would not recommend that individuals or families make drastic changes to their financial affairs, there are some simple things that you may wish to consider in order to limit the amount of inheritance tax that is payable on your estate when you pass away.

Over the course of the last few weeks we have seen a number of clients who are accelerating their plans to put in place Wills and Trusts for peace of mind in the event that anything should happen to them. As we know, the elderly and those with underlying health conditions are the most vulnerable.

Regardless of a person’s circumstances and their reasons for making a Will or Trust, one thing applies to all, and that is the need to keep the documents up to date. As a slower pace of life unfolds and many of us find ourselves with more time on our hands, now might be the perfect time to consider planning for the future, or at the very least checking that the plans we have in place still reflect our wishes.

What’s in store?

In part two of this blog series, we told you that we were anticipating that the Spring budget might contain important changes to inheritance tax. Prior to the election in 2019, the Conservative party indicated that they intended to make radical changes and we were prepared for them. However, the Covid-19 pandemic took priority in the Spring budget, therefore anything related to inheritance tax changes, quite rightly, didn’t feature.

Currently, there is no way of knowing what the impact of Covid-19 and the UK’s response will mean for the next budget, however it is possible that changes to tax rules may feature. The Gov.uk website currently states: “To ensure the fiscal framework remains appropriate for the current macroeconomic environment HM Treasury will undertake a review over the summer and announce any changes by the Autumn Budget 2020”.

We have put together the following fictitious case-study, and a checklist, to help people think about what they might like to consider.

Case-study example:

Mr Albert & Mrs Betty Smith have two children. Callum is 40. He is married and has two children, Ellie who is 10 and Fred who is 7.  Albert and Betty’s other child, Dottie, is 35 and is still living at home as she has a disability which means that she cannot work and needs a lot of care. 

Albert and Betty own their home. This has a value of £850,000. They also have savings and investments of £350,000. They are both retired and have combined pension income of £45,000 per year but only spend £35,000 per year.

Albert and Betty’s combined estate value is £1,200,000. If they both died now, the inheritance tax that would be payable is £80,000 (£1,200,000 – £1,000,000 = £200,000 x 40% = £80,000).

If Albert and Betty had read our previous blog they would know that they could have up to £950k inheritance tax exemption. The Residence Nil Rate Band is now £175k per person and so that takes their potential total exemption to £1m.

What should Albert and Betty consider now?

  • Wills – if they don’t already have one, put in place a Will. If they do, then it should be reviewed in order to ensure the Will has been drafted to make effective use of tax exemptions when either Albert or Betty die.
  • Trust- they should consider setting up a Disabled Person’s Trust for their disabled daughter, Dottie, to ensure her needs are taken care of in the future.
  • Small gifts- consider making small gifts for £250. These can be given to any number of loved ones, and as long as they do not exceed the £250 limit per year, they will be completely free of Inheritance Tax. They might do this for Ellie and Fred.
  • Gifts up to £3,000- Albert and Betty can each gift capital up to this amount (each year) without paying inheritance tax. They might do this for Callum.
  • Gifts for the maintenance of family members- this can be used to gift money to Dottie for her care and maintenance.
  • Gifts to charities – continue making Gifts to charities and other approved bodies as these are entirely exempt from Inheritance Tax.
  • Gifting normal expenditure out of income – to save Albert and Betty gaining assets (they current save £10,000 per year) they should consider giving this away. They may like to put this in a Trust for Ellie and Fred to help pay for their school and university fees.

Again, you may find it helpful to refer back to our previous blog on inheritance tax to see what exemptions apply, and whether any can be used to your advantage.

How Renaissance Legal can help

We specialise in advising our clients how to effectively plan for their own future, as well as that of their family. Our expert team are able to advise you on the right approach for your individual circumstances to ensure that you are able to feel confident in the choices that you make.

Inheritance Tax planning should not be considered in isolation. You may need to consider making or reviewing a Will, and we might need to work with other professional advisors (for example, your IFA and Accountant) to make sure we offer you the best advice suited to your personal circumstances.

Please contact us for more information.

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