Author: Talking Finances

If you take a proactive approach to managing your wealth, you could reduce how much Inheritance Tax (IHT) your estate may be liable for when you pass away.

Last month, you read about what IHT is and when estates become liable to pay it. Now, read on to discover some of the shrewd strategies you could use to reduce a potential IHT bill.

Around 1 in 22 estates are liable for Inheritance Tax

The latest HMRC figures show that around 1 in 22 estates are liable for IHT. In fact, in 2021/22, 4.39% of deaths resulted in an IHT charge. However, frozen IHT thresholds mean the portion of estates liable for IHT is slowly rising.

While only a small proportion of estates face an IHT bill, the standard IHT rate of 40% means it can lead to a sizeable amount going to HMRC rather than your beneficiaries. Indeed, according to the Office for Budget Responsibility, HMRC collected £7.1 billion through IHT in 2022/23. The organisation expects the figure to reach £9.7 billion in 2028/29.

So, if your estate could exceed the nil-rate band, which is £325,000 in 2024/25, you might want to consider these steps to reduce a potential IHT bill.

1. Write or review your will

A will is one of the key steps you can take to ensure your assets are distributed according to your wishes. Your will can also be used to manage IHT liability by distributing your assets in a way that allows you to use allowances.

For example, the residence nil-rate band could increase how much you’re able to pass on tax-efficiently if you leave your main home to children or grandchildren. In 2024/25, the residence nil-rate band is £175,000, so it could significantly boost the amount you’re able to pass on before your estate needs to pay IHT.

Yet, according to a FTAdviser report, a third of adults aged 55 or over have not made a will.

If you already have a will in place, reviewing it may be worthwhile. You might find opportunities to reduce your estate’s IHT liability or that your wishes have changed.

It’s often a good idea to check your will every five years or following major life events, such as getting married, welcoming children, or relationships breaking down.

2. Gift assets during your lifetime

Giving away some of your wealth during your lifetime might bring the value of your estate under IHT thresholds or reduce the overall bill. It could also be useful for your loved ones, who may benefit more from financial support now compared to later in life.

Some gifts may be considered immediately outside of your estate for IHT purposes, including:

• Up to £3,000 in 2024/25 known as the “annual exemption”
• Small gifts of up to £250 to each person, so long as they have not benefited from another allowance
• Wedding gifts of up to £1,000, rising to £2,500 for your grandchildren or great-grandchildren and £5,000 for your child
• Regular gifts that you make from your income that do not affect your ability to meet your usual living costs. For example, you might pay rent for your child or contribute to the savings account of your grandchild. It’s important these gifts are regular and it’s often a good idea to keep a record of them.

However, other gifts may be known as a “potentially exempt transfer” (PET) and could be included in IHT calculations for up to seven years after they were received.

You might also need to consider how gifting could affect your long-term financial security.

If you want to gift assets to your loved ones during your lifetime, making it part of your financial plan could offer peace of mind. We may be able to help you understand how gifting will affect your wealth in the future and how to do so tax-efficiently.

3. Use your pension to pass on wealth

For IHT purposes, your pension usually sits outside your estate. As a result, it might provide a valuable way to pass on assets. According to a PensionBee survey, almost two-thirds of Brits were unaware of this, so your pension might be an option you’ve overlooked when considering IHT.

Choosing to use other assets to fund your retirement could help you pass on more to your loved ones through your pension. Considering your beneficiaries when you’re creating a retirement plan could help you decide which option is right for your goals.

While pensions aren’t normally liable for IHT, your beneficiary may need to consider Income Tax when accessing funds held in an inherited pension in some circumstances.

Your pension isn’t typically covered by your will. Instead, you can complete an expression of wish form to inform your pension provider who you’d like to receive it when you pass away.

4. Place assets in a trust

Provided certain conditions are met, assets that are placed in trust no longer belong to you. So, they normally won’t be included when calculating an IHT bill.

A trust is a legal arrangement that holds assets for the benefit of another person. As the benefactor, you can set out who will benefit from the assets and under what circumstances, which can give you greater control when compared to gifting or leaving an inheritance. In some cases, you may still benefit from the assets held in a trust, such as receiving the dividends from investments.

You can also name a trustee, who would be responsible for managing the trust in line with your wishes and for the benefit of the beneficiaries.

There are several different types of trusts and it’s important it’s set up correctly to ensure it meets your needs, including reducing a potential IHT bill if that’s one of your priorities. Taking legal advice might be valuable when creating a trust.

In addition, it may be difficult, and sometimes impossible, to reverse decisions related to a trust. As a result, you should think carefully about which assets you place in a trust and how your decisions align with your wider financial plan. Please arrange a meeting with us if you’d like to talk about putting some of your wealth into a trust.

5. Take out life insurance 

Life insurance isn’t a way to reduce your estate’s IHT liability. However, it could provide a useful way for your family to pay the bill.

Whole of life insurance cover would pay out a lump sum to your beneficiaries when you pass away. They could then use this payout to cover the IHT bill, so they wouldn’t need to consider how to use their inheritance to pay the cost. This option might ease the stress your loved ones are dealing with at a time when they’re grieving or handling your affairs.

It’s important to note that you’ll need to pay regular premiums to maintain life insurance coverage. The cost of life insurance can vary depending on a range of factors, from the size of the eventual payout to your health.

You might want to consider using a trust to hold the life insurance. Otherwise, the payout could be added to the value of your estate and increase the IHT that is due.

Legal advice may be useful when setting up a trust, which can be complex.

Contact us to talk about your Inheritance Tax strategy

There might be other ways you could reduce a potential IHT bill too. If you have any questions about IHT or your wider financial plan, please contact us.

Next month, read our blog to discover how IHT in the UK compares to other countries and proposals to reform the tax.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning, trusts or Inheritance Tax planning.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Saving for that all-important property deposit can be a challenge for a first-time buyer, especially when balancing a high cost of living while trying to set aside money each month.

Of course, such difficulties have always existed, but young adults today face increasingly higher barriers to entry into the property market. Data from the Office for National Statistics (ONS) shows the average age of a first-time buyer in the UK is 36, up from 32 in 2004.

If you are saving for a property deposit, this guide will walk you through all the available options and the steps you can take to help you buy your first home.

Download your copy of ‘The first-time buyer’s guide to saving a property deposit’ now to discover:

• How much you need to save for a property deposit
• Practical tips that could help you save more effectively
• Why a mortgage in principle could be useful for setting a goal
• How a family mortgage works and if it could be an option for you.

If you’re preparing to buy your first home, we could offer you guidance throughout the process. Please contact us to speak to one of our team.

It’s a common misconception that financial protection doesn’t pay out when you need to make a claim. This belief might put you off using it to create a valuable safety net. Read on to discover some key figures that prove it could be a useful addition to your financial plan.

Financial protection is a term used to cover several different types of insurance that would pay out under certain circumstances, including:

• Life insurance, which would provide your beneficiaries with a lump sum if you passed away during the term
• Income protection, which would pay you a regular income if you were too ill or injured to work until you could return to work, retire, or the term ends
• Critical illness, which would pay out a lump sum to you if you were diagnosed with a covered illness.

As you can see, financial protection could provide you or your loved ones with an essential cash injection when the unexpected happens. The payout may be used how the recipient wishes, from clearing large financial commitments, such as a mortgage, to covering day-to-day expenses.

As a result, you could use financial protection to create a safety net for your family.

If you’ve put off taking out financial protection in the past because you believe you wouldn’t receive a payout if you needed to make a claim, here are five interesting figures that may change your mind.

1. 96.9% of life insurance claims were paid in 2022

According to statistics collected by Forbes, the vast majority of life insurance claims result in a payout. In 2022, 96.9% of claims were approved.

However, the figures also suggest that just 35% of people have taken out life insurance. So, many families could find they’d be financially vulnerable if there were an unexpected death. It can be difficult to think about how your family would cope if you passed away, but assessing their financial resilience now could potentially help you take steps to ensure their long-term security.

One of the most common reasons life insurance claims are rejected is non-disclosure. It’s important to be honest and clear when you’re taking out any type of financial protection – not providing details about pre-diagnosed conditions or your lifestyle could mean a future claim isn’t upheld.

2. The average life insurance payout in 2022 was more than £73,500

The Forbes data also found that the average amount paid out as a result of a life insurance claim was more than £73,500.

When taking out life insurance, you can choose how much the potential payout will be to suit the needs of your family.

You may choose to link the potential payout to financial commitments. For example, you might want to ensure it’ll provide your loved ones with a way to pay off the mortgage. Or you might want to calculate how it could be used to cover regular expenses to provide stability for your children until they reach adulthood.

If your loved ones might struggle to manage a lump sum, you could also consider family income benefit. Again, your family could claim if you passed away during the term. However, rather than a lump sum, it would provide a regular income to your loved ones for a defined period.

3. The number of people making an income protection claim increased by 9% in 2022

When asked why they haven’t taken out income protection, many people believe that an unexpected event that leaves them unable to work would never happen to them. Yet, it’s impossible to know what’s around the corner.

According to statistics from the Association of British Insurers (ABI), more than 15,900 people made an income protection claim in 2022 – a 9% increase when compared to a year earlier. Of course, the number of people who were affected by an accident or illness but did not have income protection is likely to be much higher.

In total, more than £231 million was paid out to people who were unable to work. The most common claim was for musculoskeletal issues, such as neck and back pain.

4. 9 in 10 people making a critical illness claim were successful

Similarly, the ABI statistics show more than 9 in 10 claims made by holders of critical illness cover received a payout in 2022, with the average person receiving around £66,000.

A critical illness may mean you need to take an extended period off work to recover your health, and a payout could help cover your essential expenses. In some cases, being diagnosed with a critical illness could also affect your lifestyle and the payout could be useful if you need to adapt your home or pay for specialist care.

5. Protection collectively paid more than £6.85 billion to individuals and families in 2022

Finally, proving that financial protection does pay out in many cases, collectively those claiming in 2022 received £6.85 billion. Benefiting from a portion of this money may have helped claimants continue with their lives when the unexpected happens, provide for their families, or allow them to take some time away from work to recover.

Contact us to talk about how to create a financial safety net

Financial protection is just one step you could take to create a financial safety net that provides you with peace of mind. Contact us to discuss how you could improve your financial resilience as part of your wider financial plan, including taking out financial protection if it’s appropriate for you.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

Often dubbed “death tax” or “Britain’s most-hated tax” in the media, Inheritance Tax (IHT) may seem complex, and you might be unsure if it’s something you should consider as part of your estate plan.

Over the next few months, you can read about the essentials you need to know, how to reduce a potential tax bill, and the importance of regular reviews.

IHT is a tax that’s levied on the estate of someone who has passed away if its value exceeds certain thresholds.

Around 4% of estates were liable for IHT in 2023/24 and it led to the Treasury receiving a record £7.5 billion, according to a Professional Adviser report. That’s an increase of £4 million when compared to the previous tax year.

With a standard tax rate of 40%, IHT could have a huge effect on the wealth you pass on to loved ones. According to HMRC, the average IHT bill in 2020/21 was £214,000.

There are often ways you could reduce an IHT bill if you’re proactive. One of the first steps to take is to find out if your estate could be liable for IHT.

So, read on to find out how the IHT thresholds work.

Most estates can pass on up to £500,000 before Inheritance Tax is due in 2024/25

Your estate encompasses all your assets. So, you might need to consider savings, investments, property, and material items when you’re calculating its value.

The threshold for paying IHT is £325,000 in 2024/25; this is known as the “nil-rate band”. If the total value of your estate is below this amount, no IHT will be due.

Many estates can also make use of the residence nil-rate band. In 2024/25, this is £175,000. To use this allowance, you must pass on your main home to children, grandchildren, or other direct descendants.

As a result, the majority of estates can pass on up to £500,000 before they need to consider IHT.

If the net value of your estate (the value of assets less any liabilities) exceeds £2 million, you could be affected by the tapering of the residence nil-rate band. If you have any questions about your IHT allowances, please contact us.

Importantly, if you’re married or in a civil partnership, your partner can inherit your entire estate without having to pay an IHT bill. In addition, your partner could also inherit unused allowances when you pass away.

In effect, when you’re planning as a couple, this means you could pass on up to £1 million before IHT is due.

Remember, the value of your assets may change

While the value of your estate could be under the IHT thresholds now, will that still be the case in the future?

Both the nil-rate band and residence nil-rate band are frozen until April 2028. This freeze is expected to pull more estates above the threshold. Indeed, the Institute for Fiscal Studies estimates that 7% of estates could be liable for the tax by 2032/33.

So, if the value of your assets increases, you might unexpectedly find that the value of your estate now exceeds the threshold for paying IHT. Regular reviews of your assets and estate plan could help you assess if IHT might be something you need to consider in the future.

Contact us to discuss if your estate could be affected by Inheritance Tax

If you’re worried that IHT could affect your estate, please contact us. We could help you formulate an estate plan that’s tailored to you and your wishes.

Read our blog next month to discover some of the ways you might be able to mitigate an IHT bill.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate Inheritance Tax planning or estate planning.

Deciding how to sustainably access your pension is often a big decision. If you’re planning with a partner, you might have an added layer of complexity – how can you make sure they’d be financially secure if you pass away first?

It may be a question that’s difficult to consider. Yet, if your finances are intertwined, particularly if one of you holds a greater proportion of assets, it could be an important one to contemplate now.

Dealing with the loss of a partner is challenging, and financial woes could place even more pressure on the bereaved. So, taking steps to ensure your loved one has an income or assets they can use should you pass away first could ease the stress they experience at an already difficult time.

Read on to discover four ways your pension could create long-term financial security for your partner.

1. Check if your partner would inherit your State Pension

The State Pension is often valuable in retirement as it provides a guaranteed income that, under the pension triple lock, increases each tax year to maintain its spending power.

To claim the full new State Pension, which is around £11,500 in 2024/25, you need at least 35 qualifying years of National Insurance contributions. The new State Pension was introduced in 2016, so if you receive the old State Pension, the amount of income it provides may be different.

According to a report in FTAdviser, only half of the people claiming the new State Pension receive the full amount. In addition, around a quarter of people who are claiming the old basic State Pension don’t receive the full rate either.

So, it’s worth checking if your partner receives the full amount from the State Pension, and how the loss of your State Pension could affect their financial stability.

In some cases, a spouse or civil partner may inherit an extra payment on top of their State Pension if they’re widowed.

The rules around inheriting State Pension entitlement are complex and will be affected by a range of factors, including:

• The date you reached the State Pension Age
• The date of your marriage or civil partnership
• Your partner’s existing State Pension entitlement
• Whether your partner paid a reduced rate of National Insurance for married women.

Please contact us if you’d like to understand if your partner would inherit a portion of your State Pension.

2. Review your defined benefit pensions

If you have a defined benefit (DB) pension, also known as a “final salary pension”, you’ll usually receive a guaranteed income from your retirement date for the rest of your life. Often, the income provided will rise in line with inflation.

As a result, a DB pension could be a useful asset that helps you create security in retirement. A key benefit of many DB pensions is that they’ll continue to provide spouses, civil partners, or dependants with a regular income if you pass away.

You can check your paperwork or contact your pension scheme to see what income your partner could receive if you die first.

3. Use your retirement savings to purchase a joint annuity

If you have a defined contribution (DC) pension, you’ll have a pot of money when you retire that you can access in several ways. One option is to purchase an annuity, which would provide you with a guaranteed income in retirement. There are several different types of annuities that you could consider.

When you’re retirement planning as a couple, a joint annuity could be a useful way to ensure that a widowed partner continues to receive a regular income.

Usually, the surviving partner would receive a portion of the income that the annuity originally provided. So, it may be important to consider the day-to-day expenses your partner will need to meet when assessing which annuity is right for you.

Annuity rates affect how much income you’ll receive, and they can vary significantly between providers. Shopping around could help you get more out of your retirement savings and provide greater financial security. If you’d like our support when accessing your pension or purchasing an annuity, please contact us.

4. Complete an expression of wish form for your pension

It’s also possible for your partner to inherit the money that remains in your DC pension. However, research suggests that many pension savers risk their money going to the wrong person.

Usually, your pension is not covered by your will. Instead, you use an expression of wish form to inform your pension provider who you’d like to receive your pension. While an expression of wish isn’t legally binding, the pension scheme will consider it when deciding who should inherit your savings.

A survey from Canada Life suggests that more than half of UK adults have not completed an expression of wish form and risk their savings going to someone else. So, if you want to ensure your partner’s financial security should the worst happen, completing the form might be an essential step to take.

If you have more than one DC pension, you’ll need to complete an expression of wish form for each one.

Financial confidence could also play a role in your partner’s long-term security

While passing on an income or pension wealth might provide your partner with the assets they need to create financial security, do they have the confidence to manage their finances themselves?

If you usually make financial decisions, suddenly taking charge could be overwhelming for your partner. They might be unsure about how to use the assets they’ve inherited, which could mean they fall short of an opportunity for financial security.

So, if you don’t manage your finances jointly already, you might want to consider involving your partner in your decisions now. Working with a financial planner together could mean your partner has someone to turn to when they’re potentially making financial decisions alone in the future.

Contact us to talk about your long-term financial plan

As your financial planner, we can work with you to create a financial plan that not only considers your goals but your worries as well. If you’re concerned about how your partner would cope financially if you were to pass away first, we may be able to help.

Please contact us to arrange a meeting to talk about your long-term financial plan and how to create security for both you and your partner.

Please note:

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

If you know anyone who has suffered from dementia, you will understand what a cruel illness it can be. From forgetting simple things to aspects of your loved one’s personality changing, dementia can completely transform a person you thought you knew.

However, as you might’ve seen in the news, new advancements in dementia treatments could help to diagnose and treat the illness more effectively than ever before.

Read on to discover more about these scientific breakthroughs and what they could mean for anyone who might struggle with dementia in the future.

What is dementia?

Dementia is a syndrome (a group of symptoms) associated with an ongoing decline of brain functioning, which means there are many different causes and types of dementia.

Two of the most common forms of dementia are Alzheimer’s disease and vascular dementia.

Although doctors are unsure what causes Alzheimer’s disease, they have identified a number of risk factors, including:

• Increasing age
• Untreated depression
• A family history of the condition.

Vascular dementia, on the other hand, is caused by reduced blood flow to the brain. This most commonly happens as a result of a stroke and affects around 180,000 people in the UK.

What are the advancements in diagnosing dementia?

Teams from Dementias Platform UK and UCL are working together to create the Blood Biomarker Challenge, a project which aims to revolutionise dementia diagnoses.

Currently, only 2% of people with dementia can access specialised tests (such as PET scans or lumbar punctures), which will confirm which type of dementia they have.

These researchers are recruiting participants from sites across the UK to trial new blood tests designed to diagnose a range of types of dementia.

The goal is for these teams to provide evidence that the blood tests are ready for use in the NHS, paving the way for them to be made widely available to anyone who might benefit in the next five years.

Quick and accurate diagnosis of dementia is crucial, as it would allow people to access vital care and support that could help them manage their symptoms.

How do you treat dementia?

Although there is no known cure for dementia, scientists are experimenting with new treatments that can help to relieve patients’ symptoms.

In a recent CNN documentary, The Last Alzheimer’s Patient, two Alzheimer’s sufferers claim to have beaten the deadly disease through healthy lifestyle changes.

Cici Zerbe claimed to experience a reversal in her symptoms after participating in a clinical trial in the US, which explored the effects of intensive lifestyle changes on early dementia.

These changes included switching to a plant-based diet, regular exercise, group support sessions, yoga and meditation.

BBC radio and comedy producer Simon Nicholls also took part in this trial as he carried two copies of the gene variant ApoE4, the greatest genetic risk factor for Alzheimer’s. One copy of the gene is associated with three to four times the risk of Alzheimer’s, but two copies increased his risk twelvefold.

After 14 months of drastically changing his lifestyle, Simon’s biomarkers for Alzheimer’s disappeared.

He cited a focus on physical activity – including strength training three times a week, walking 10,000 steps every day, and jogging or cycling every morning – and a healthy diet as the reason for the reversal of his symptoms.

What can I do to reduce my risk of dementia?

It’s important to remember that Cici and Simon are only two people in a larger study, so their experience may not be universal. However, cardiovascular disease is known to be a common cause of dementia, and it can be influenced by lifestyle changes.

So, what can you do to reduce your risk of dementia?

1. Eat healthily

Unhealthy foods can increase your cholesterol levels, which can build up hard plaque on your arteries and increase your risk of cardiovascular disease or heart attacks.

2. Exercise regularly

Exercising regularly can reduce your risk of a number of illnesses, including coronary heart disease, strokes, type 2 diabetes, and cancer.

The NHS recommends that adults take part in 150 minutes of moderate or 75 minutes of intense activity every week.

3. Quit smoking and enjoy alcohol responsibly

Smoking can increase your risk of cardiovascular disease and strokes, among other illnesses, which have been linked to dementia.

Drinking more than the recommended 14 units of alcohol a week can shrink the parts of the brain involved in memory, and long-term heavy drinking can lead to alcohol-related dementia.

Quitting smoking and drinking may be hard, but it is one of the best things you can do for your health. Speak to your doctor if you need advice or help with kicking these unhealthy habits.

4. Improve your sleep hygiene

Researchers found that sleep deprivation could be linked to Alzheimer’s disease.

Their study found that people in their 50s and 60s getting six hours of sleep or less were 30% more likely to be diagnosed with dementia than those who got a regular amount of sleep.

Adults are recommended to get seven to nine hours of sleep every night.