Generational Financial Planning

What is a trust?

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‘Ring-fencing’ assets to protect family wealth for future generations.

You may want to consider putting some of your assets into a trust for a loved one. Trusts are a way of managing wealth, money, investments, land or property, for you, your family or anyone else you’d like to benefit. You may want to consider putting some of your assets into a trust for a loved one.

Trusts are a way of managing wealth, money, investments, land or property, for you, your family or anyone else you’d like to benefit. They are used to protect family wealth for future generations, reducing the intergenerational flow of Inheritance Tax and ensuring family protection for your estate from outside claims.

The way in which assets held within trusts are treated for Inheritance Tax purposes depends on whether the choice of beneficiaries is fixed or discretionary.

There are lots of different types of trust and some will allow you to ‘ring-fence’ the money or property so that it sits outside of your estate when you die.

The most popular types of trust commonly used for Inheritance Tax planning can usually be written on either an ‘absolute’ or a ‘discretionary’ basis and the taxation treatment is very different for each. A trust is a fiduciary arrangement that allows a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries. Once the trust has been created, a person can use it to ring-fence assets.

Trusts terms:

  • Settlor – the person setting up the trust.
  • Trustees – the people tasked with looking after the trust and paying out its assets.
  • Beneficiaries – the people who benefit from the assets held in trust.

Trusts are a complicated area and can be expensive to set up. Some are subject to other tax regimes, so you should get authorised and regulated specialist advice. Book a chat with us for further information and guidance on trusts.

How to Create an Estate Plan

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An image to show an inheritance tax uk checklist on how to create an estate plan

How to Create an Estate Plan

Leaving a Tax-Efficient Legacy

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Passing assets to the next generation

If you thought Inheritance Tax was just for extremely wealthy people to worry about, think again. Rising property prices have meant more estates than ever are likely to face an Inheritance Tax bill.

You’ve worked to build up your wealth. But now it’s time to make plans so your loved ones can get the most from the estate you intend to leave behind. If you think you might be affected by Inheritance Tax, it can be tempting to hold off making plans to do anything about it. But the truth is that it’s better to plan earlier for Inheritance Tax.

Estate planning is an essential element of preparing your finances for when you are no longer around but want to make sure that as much of your estate as possible is exempt from Inheritance Tax. Current thresholds are frozen until at least 2026, so it’s likely more estates could trigger a 40% Inheritance Tax bill over the coming years.

Inheritance Tax planning options

On your death, the first £325,000 nil-rate band (2022/23) of your estate is exempt from the 40% Inheritance Tax. However, you can also make financial gifts that will reduce the value of your estate when you die. For those who have accumulated a reasonable amount of wealth and who have children, the seven-year rule can be taken full advantage of.

Period of years before death % Reduction (Taper Relief) Period of years before death % Reduction (Taper Relief)
0 – 3 years Nil 0 – 3 years Nil
3 – 4 years 20% 3 – 4 years 20%
4 – 5 years 40% 4 – 5 years 40%
5 – 6 years 60% 5 – 6 years 60%
6 – 7 years 80% 6 – 7 years 80%
More than 7 years No tax More than 7 years No tax
0 – 3 years Nil 0 – 3 years Nil

This is one of the most popular, and cost effective, Inheritance Tax planning options relating to gifting some of your wealth to loved ones before you die. The idea being that the people who matter to you most could start to benefit from some form of inheritance earlier.

Gift reduces each year

It also reduces the value of your estate. Meaning, when it’s assessed for Inheritance Tax, your potential liability could prove lower. Or, even better, you don’t have one at all. In order for bigger financial gifts to be fully exempt from Inheritance Tax, you need to live for at least seven more years.

If you die within seven years of making the gift, it is still considered part of your estate and it will be included in your Inheritance Tax assessment.

If you die between three and seven years, you would still have to pay some tax on the gift if it exceeded the available nil-rate band. The amount payable on the gift reduces each year once you have survived the gift by over three years. Only after seven years is the full gift no longer part of your estate for Inheritance Tax purposes.

Maximise the amount of inheritance you leave to loved ones

There are many ways you might be able to reduce (or even eliminate) a potential liability. But the longer you wait, the more expensive some of these options might prove.

It goes without saying that none of us knows when our time will come. That’s why it can really help to start making plans now. Doing so could help you maximise the amount of inheritance you leave to loved ones.

Want to start a conversation?

Making financial gifts to your loved ones could make a big difference to their financial security and wellbeing. It could also be more effective for Inheritance Tax planning purposes to gift money while you’re still alive than to pass it on through your Will when you die. To find out more, please contact us for more information.

Millions of married couples have no idea about their spouse’s pensions & retirement plans

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Millions of married couples have no idea about their spouse’s pensions and retirement plans, according to new research

78% of non-retired married people do not know what their spouse’s pensions are worth.

47% of non-retired married people have not spoken to their spouse about their retirement plans

85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together

Pensions & Retirement Still Remain a Taboo

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When it comes to marriage and money, it’s good to talk!

Millions of married couples have no idea about their spouse’s pensions and retirement plans, according to new research[1]. More than threequarters (78%) of non-retired married[2] people do not know what their spouse’s pensions are worth.

Nearly half (47%) of non-retired married people have not spoken to their spouse about their retirement plans and 85% of non-retired married people are not aware of the tax-efficiencies of planning retirement together.

Retirement finances

Wealthy people aren’t doing much better. Mass affluent people (those with assets of between £100,000 and £500,000 excluding property) are more likely than average to be aware of the value of their spouse’s pension, but the majority (60%) aren’t going to plan their retirement finances with their spouse and 78% aren’t aware of the benefits of planning retirement together.

The research indicates that millions of married people are not talking to their partners about their pensions and retirement plans. That’s a mistake because couples who jointly plan their retirement can be much better off when they stop working.

Lifetime of saving

Most people have a good idea of what their house is worth, and the same attitude should apply to their retirement funds. After a lifetime of saving, the value of a retirement fund can be worth as much as a property so it’s important that people know how much their retirement savings are worth and the potential death benefits they offer.

The best way for people to ensure they have the retirement they want, their pension income lasts throughout their retirement and that they avoid unnecessary tax bills is to obtain professional financial advice. This is especially true for people who plan to retire within the next five years.

Pension tips for couples

  • Pay into your partner’s pension: A higher-earning partner approaching the Lifetime Allowance or Annual Allowance could pay additional contributions into their partner’s pension. The contributions will attract tax relief.
  • Don’t forget the death benefits and Inheritance Tax benefits of pensions: Pensions won’t normally form part of the estate for Inheritance Tax purposes and, on death before age 75, they can usually be paid out tax free (on death after 75, they are taxed as the beneficiary’s income). It can make sense to discuss when and how to access a pension and if it would be better to spend any other savings first.
  • Avoid unnecessary large withdrawals from a pension fund: Couples should consider how much money they need to withdraw from their pension funds. Drawing too much too quickly can lead to large tax bills.
  • Make sure your partner knows who to contact about your pensions if you die: You may have carefully arranged all your finances so that they can be passed to your loved ones in the most tax-efficient way possible. However, if your partner hasn’t been part of the conversation they may make uninformed decisions. It’s worth remembering that any adviser/client relationship you have ends on death. Data protection rules mean your financial adviser won’t necessarily know what is happening. This can lead to irreversible and costly mistakes being made.

On retirement, many people’s first instinct is to request their full tax-free cash entitlement. However, unless a large lump sum is needed
for a specific purpose, this is not always the wisest course of action. If flexibly accessing a pension, it can often make sense for couples to retain most of the tax-free cash entitlement until a later date, looking to utilise the personal allowance (and potentially the basic rate tax band) to draw tax-efficient income instead.

Successfully managing finances in marriage

When you and your spouse married, you agreed to share a financial future. It’s an important issue for most married couples. Although successfully managing finances in marriage is essential to your happiness together, talking about money may not come naturally. To discuss how we could help you plan your finances, please contact us for more information.

Source data: [1] LV= surveyed 4,000+ nationally representative UK adults via an online omnibus conducted by Opinium in June 2021. [2] Includes couples in civil partnerships. UK population stats from ONS. Total UK adult population is 52.7m UK adults (aged 18+).

How parents pass on wealth

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How parents pass on wealth

Leaving it in a Will 88%
Bank transfer/cash 67%
Consulting Financial Adviser 57%
Writing wealth into trust 56%
Putting money into investment 53%
Putting money into a pension for their children 43%

Family focused financial advice

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Often when making financial plans, it can feel like a very individual decision. What you’re actually doing is planning for yours and your family’s future. All families are different. And that’s why it’s really important to involve your financial adviser with the whole family story.

Protecting family wealth

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What will your legacy look like?

Estate planning is about putting your affairs in order, to help make the lives of your loved ones easier. It can help to protect your estate for your beneficiaries and reduce the impact of Inheritance Tax (commonly called IHT for short).

IHT is something many of us don’t know enough about. Simply because we don’t think we need to.

Five key points to consider – Tax year 2022/23

1) IHT doesn’t just affect the wealthy

Traditionally, only the wealthiest in society were affected by IHT. But rising property prices means more and more people are now facing it. It all comes down to the value of your overall estate upon your death. If it’s worth more than your personal nil-rate band (NRB), anything above could be liable to IHT at up to 40%. (If you’re single or divorced, the NRB is £325,000 and if you’re married, in a registered civil partnership or widowed, it’s up to £650,000).

2) There’s also the residence nil-rate band (RNRB) – but not everyone can benefit

If you’re wondering what the RNRB is, this can be used alongside your usual NRB – and was introduced to help more people reduce their IHT liability. Every UK adult has a RNRB of £175,000. But the rules can be more complex than many people realise. Amongst the restrictions, you can only use this allowance if it relates to a property you have lived in, and passed to a direct descendant (such as your child or grandchild – not a friend, niece or nephew).

3) Your estate isn’t just your home

Your savings and investments, car and any rental properties form a part of your estate. Not forgetting any jewellery you have, household furniture or expensive paintings (minus any liabilities, like an unpaid mortgage). After working out the value of your belongings, you may be surprised by how much your estate comes to. It could be worth a lot more than you think. It’s also important to bear in mind that these assets could increase or decrease in value in the future.

4) Annual revenue is expected to keep climbing

The latest IHT figures should be a ‘wake-up call’ for families to think carefully about their tax planning. IHT receipts in the United Kingdom amounted to approximately £5.32 billion in the financial year 2020/21[1].

5) Your could do something about it

There are plenty of perfectly legal steps you can take to protect your family’s wealth from the taxman. The IHT solutions include annual exemptions, allowances, direct gifts and trusts.

Of course, there are many different options to choose from – so it’s important you find one that’s right for you. With this in mind, and the fact that IHT can be a complex subject, you should always obtain professional financial advice to guide you through the complexities – and help you put suitable plans in place.

Worried about Inheritance Tax eating into your estate?

How can you leave a tax-efficient legacy? We’ll help you leave more to those you love most. Although it’s not nice to think about, getting your affairs in order for when you pass away can bring real peace of mind as you get older. To find out more, please contact us to discuss your requirements or visit our Inheritance Tax page.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

Source data: [1] https://www.statista.com/statistics/284325/united-kingdom-hmrc-tax-receipts-inheritance-tax/

Improving your financial health

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Staying on track to achieving specific financial goals

All of your financial decisions and activities have an effect on your financial health. To help improve your financial health during this period of rising inflation rates and household costs, we look at three areas that could help keep you on track to achieving your specific financial goals.

Beat the national insurance rise

The National Insurance rise from April this year has gone ahead for workers and employers despite pressure to reverse the decision to increase this by 1.25%, which is aimed at raising £39 billion for the Treasury. From April 2023, it is set to revert back to its current rate, and a 1.25% health and social care levy will be applied to raise funds for further improvements to care services.

One way to beat the National Insurance increase is by taking advantage of salary sacrifice, which means you and your employer pay less National Insurance contributions. Some employers may decide to maximise the amount of pension contributions by adding the savings they make in lower employer National Insurance contributions (NICs) to the total pension contribution amount they pay. This is also a way to make your pension savings more tax-efficient. If you choose to take up a salary sacrifice scheme option, you and your employer will agree to reduce your salary, and your employer will then pay the difference into your pension, along with their contributions to the scheme. As you are effectively earning a lower salary, both you and your employer pay lower NICs, which could mean your take-home pay will be higher. Better still, your employer might pay part or all of their NICs saving into your pension too (although they don’t have to do this).

Review your savings

Accounts and rates

Money held in savings accounts hasn’t grown much in recent years due to historically low interest rates. But with inflation running higher, your savings are now at risk of losing value in ‘real’ terms as you will be able to buy less with your money.

In some respects, inflation can be seen as a positive. It’s a sign of strong economic recovery post-COVID, increasing salaries and higher consumer spending. But it’s bad news for your cash savings. Relying solely or overly on cash might prevent you from achieving your long-term financial goals, which may only be possible if you accept some level of investment risk.

In an environment where the cost of living is rising faster than the interest rates received on cash, there is a danger that your savings will slowly become worth less and less, leaving you in a worse position later on. If you have money in savings, it is important to keep an eye on interest rates and where your money is saved. Rates are low and you will lose money in real terms if inflation is higher than the interest rate offered on your savings account or Cash ISA.

Shift longer term savings into equities

During times of high inflation, it’s important to keep your goals in mind. For example, if your investment goals are short term, you may not need to worry much about how inflation is impacting your money. But if you’re investing for the long term, inflation can have a larger impact on your portfolio if it’s sustained – although high inflation that only lasts for a short period may end up just being a blip on your investment journey.

If you have large amounts of money sitting in cash accounts one way to beat inflation is to invest some of your money in a long-term asset that will appreciate with time, thus increasing your buying power over time. There are many ways to invest your money, but most strategies revolve around one of two categories: growth investments and income investments.

Historically, equities have offered an effective way to outperform inflation. Cyclical stocks – like financials, energy and resources companies – are especially well-suited to benefit from rising prices. These sectors typically perform better when the economy is doing well, or recovering from a crisis. Depositing funds into your investment portfolio on a regular basis (such as monthly from salary) can help you invest at different prices, averaging out the overall price at which you get into the market. Known as pound-cost averaging, this can help you smooth out any fluctuations caused by market volatility over the long term. While volatility will always exist, it can be managed and reduced by taking this approach.

Would you like advice on how to improve your financial health? Speak to us to find out how we can help.

Festive gifts that teach children the value of money

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Why parents should look to Christmas investment gifts instead of toys.

With the festive season approaching, have you thought about gifting your children or grandchildren something different this year? Giving them a good start in life by making investments into their future can make all the difference in today’s more complex world.

Lifetime gifting is not only a good way to set up children for adulthood but is also a way of mitigating any Inheritance Tax concerns. However, what’s clear is that not all saving products for children are made equally. With interest rates at historic lows, if you are looking to put money away for a child to enjoy when they grow up investing is by far the best way to maximise your gift.

Significantly higher returns

Some people remain worried about the volatility of investing but, with an 18-year horizon, putting money to work in the market can give significantly higher returns than products such as Premium Bonds.

One option to consider is a Junior Individual Savings Account (JISA). These were introduced in the UK on 1 April 1999 as a long-term replacement for Child Trust Funds (CTFs). If a child was born between 2002 and 2011, they might already have a Child Trust Fund, but these can be transferred into a JISA.

Save and invest on behalf of a child

If the CTF is not transferred, when a child reaches 18 they’ll still be able to access the money. Or they can choose to transfer it into a normal Cash ISA. A JISA is a long-term savings account set up by a parent or guardian and lets you save and invest on behalf of a child under 18 without paying tax on income or gains.

With a Junior Stocks & Shares ISA account, you can put your child’s savings into investments like funds, shares and bonds. Any profits you earn by trading investment funds, shares or bonds are free from tax. Investments are riskier than cash but could give your child a bigger profit, and the value of a Junior Stocks & Shares ISA can go down as well as up.

Money in the account belongs to the child, but they can’t withdraw it until they turn 18, apart from in exceptional circumstances. They can start managing their account on their own from age 16.

Financial education from a young age

The Junior ISA limit is £9,000 for the tax year 2021/22. If more than this is put into a Junior ISA, the excess is held in a savings account in trust for the child – it cannot be returned to the donor. Friends and family can also save on behalf of the child as long as the total stays
under the annual limit.

When your child turns 18, their account is automatically rolled over into an adult ISA . They can also choose to take the money out and spend it how they like. It is therefore important to ensure that children are given financial education from a young age so that when they can get their hands on the funds they use them wisely.

Been putting off planning for your child’s future?

Many parents, guardians and grandparents want to help younger members of the family financially – whether to help fund an education, a wedding or a deposit for a first home. If you are asking yourself ‘How can I start saving for my child’s future?’, using a Junior Individual Savings Account could be a good place to start. You don’t need a big lump sum to get started. In fact, contributing regular smaller amounts is a good way to start. To find out more, please speak to us – we look forward to hearing from you.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change. The value of investments and income from them may go down. You may not get back the original amount invested. Past performance is not a reliable indicator of future performance.