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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.

It doesn’t matter how much you prepare; sometimes unexpected life events could mean your carefully laid plans go awry. While you can’t know what’s around the corner, you can change how you respond to unpredictable events to help keep your financial plan on track.

A life event could have a huge impact on your wealth, both now and in the future. Circumstances outside of your control might even lead to you changing your long-term goals. So, even if you already have a robust financial plan in place, a review following major life events could be helpful.

Here are four unpredictable life events you might have experienced that could mean you’d benefit from updating your financial plan.

1. Experiencing redundancy

Redundancy could have a huge effect on both your short- and long-term finances.

In the short term, you might need to dip into savings or other assets to cover your essential outgoings. As you may stop contributions towards your long-term goals, such as adding to your pension for retirement, it could also mean you face an unexpected shortfall in the future.

You might also receive a redundancy payout, which you want to understand how to use to improve your financial security.

According to data from the Office for National Statistics, around 3.4 employees in every 1,000 were made redundant between March and May 2024. A separate poll from SurveyMonkey also found that 58% of employees feel uncertain about their future job security.

If you’ve been made redundant, a financial review could help you identify ways to manage your finances while you search for employment, and then assess the potential long-term impact.

2. Taking time off work due to an accident or illness

Needing to take a long time off work due to an accident or illness could leave you in a financially vulnerable position. Much like redundancy, it could affect both short- and long-term finances.

You might think the chances of you being unable to work for an extended period are slim. However, figures released at the start of 2024 and published in the Guardian, highlight how many people are affected by unexpected illnesses. According to the data, 2.8 million people were not working due to long-term sickness at the start of the year.

If you’re unable to work, a financial review could help you assess how to use your assets to create a regular income to cover essential outgoings. It might also consider how you could keep long-term goals on track.

3. Separating from your partner

Whether you’re married or not, separating from your partner may have large implications for your financial security. Separating when your finances are intertwined could have a substantial impact on your household income, regular expenses, and even long-term wealth creation.

Indeed, research led by the University of Bristol found that equal division of joint assets, including property and pensions, was not the norm during divorce. It only occurred in around 3 in 10 cases. This means that one person was likely to miss out financially.

Working with us to assess your financial plan following a separation could help you understand how your assets have changed and what steps you might need to take to improve your financial resilience.

A financial review isn’t just useful for assessing your assets. Following the breakdown of a relationship, your lifestyle goals and long-term aspirations might have changed too. So, updating your financial plan could ensure it continues to reflect the future you want.

4. Receiving an inheritance

Unexpected events don’t always harm your finances. Indeed, if you receive an inheritance or a windfall, it could provide you with greater financial freedom than you previously had.

Receiving a large lump sum out of the blue might feel overwhelming, especially if it’s through an inheritance and you are dealing with the loss of a loved one. When you’re ready, seeking tailored financial advice could help you understand how to use the wealth in a way that aligns with your goals.

Have you experienced an unexpected life event? Contact us to review your financial plan

Whether you’ve experienced one of the four unexpected life events listed above or you’ve been affected in another way, we could help you assess your financial plan to ensure it continues to reflect your new circumstances. Please contact us to arrange a meeting with one of our team.

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.

In July, the markets were affected by general elections taking place in the UK and France, and the ongoing presidential campaign in the US. Read on to find out what else affected investment markets in July 2024.

Uncertainty and numerous other factors may affect the value of your investment portfolio. However, for most investors, long-term trends are a better indicator of their strategy’s performance than short-term movements. Returns cannot be guaranteed, but, historically, markets have risen in value over longer time frames.

UK

The UK public took to the polls on the 4 July. The results of the general election ended 14 years of Conservative rule when the Labour Party secured a majority.

The following day saw the FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – rise by 0.3% when trading opened.

Housebuilders saw some of the biggest gains as Labour made building 1.5 million new homes over the next five years a key manifesto pledge. According to the Guardian, Persimmon, Vistry Group, Taylor Wimpey and Barratt Developments all saw rises between 1.7% and 2.5%.

Mid-cap index FTSE 250 also benefited from a post-election bounce when its value increased by 1.8% and reached a two-year high.

New prime minister Keir Starmer stepped into the top job and received welcome news when official statistics were released.

Data from the Office for National Statistics shows that after no growth in April, GDP increased by 0.4% in May. The figure suggests the UK economic recovery is gaining momentum after a technical recession at the end of 2023.

Inflation remained stable during July, as prices increased by 2%, which is the Bank of England’s (BoE) target. The data paved the way for the BoE’s Monetary Policy Committee to cut its base interest rate on 1 August from 5.25% to 5%.

According to S&P Global’s Purchasing Manager’s Index (PMI), the momentum in the service sector in May started to slow in June. However, the slowed pace was linked to the general election as some individuals and businesses opted to see the outcome before they placed orders. So, the sector could see an uptick in July.

Despite the positive signs, many businesses are still struggling. According to business recovery firm Begbies Traynor, the number of firms in “significant” financial distress jumped by 10% in the second quarter of 2024 compared to the first three months of the year.

The numbers are even more stark when you compare them to the same period in 2023 – with a 36.9% rise. Of the 22 sectors monitored, 20 saw an increase in the number of firms in difficulty.

Europe

Inflation across the eurozone fell slightly to 2.5% in the 12 months to June 2024, according to Eurostat. The figures show inflation varied significantly across the bloc. Finland recorded the lowest rate of inflation at 0.5%, while Belgium had the highest rate at 5.4%.

With the headline inflation figure still above the 2% target, the European Central Bank opted to hold interest rates.

PMI figures suggest the manufacturing sector is struggling in the eurozone. It was partly pulled down by Germany’s enormous manufacturing sector, which has been contracting for the last two years, according to the PMI. A PMI reading above 50 indicates growth, so Germany’s reading of 43.5 in June suggests the country has some way to go before it starts to grow again.

The parliamentary election in France and its unexpected twists led to market volatility. On 1 July, the CAC 40 index, which includes 40 of the most significant stocks on the Euronext Paris stock exchange, was up 1.5% as it became less likely a far-right party would secure a majority.

The final shock results saw the formation of a left-wing coalition. The uncertainty around whether the left could work with Emmanuel Macron’s centrist party led to the CAC 40 falling by 0.5% on 8 July when trading opened. Yet, it returned to positive territory later in the day.

The EU is reportedly planning to impose an import duty on cheap goods amid concerns from retailers in a move that could affect foreign businesses, such as Temu and Shein. The current limit for import duty is €150 (£126.13), which allows some retailers to ship products from overseas while avoiding a levy.

US

The US presidential election doesn’t take place until 5 November, but candidates have already been campaigning for months.

Following an assassination attempt on Republican candidate Donald Trump, Wall Street rose on the 15 July. Expectations of a victory for Trump led to the S&P 500 index rising 0.42%. The share price of Trump’s media company far outstripped the market when it rose by 70% at the opening and briefly led to the business being valued at $10 billion (£7.76 billion).

With Joe Biden stepping out of the presidential race, the results of the election are far from certain and it’s likely to continue affecting markets.

Inflation in the US continued to fall in the 12 months to June. However, at 3%, it’s still above the Federal Reserve’s 2% target.

Official statistics also show that the US trade deficit widened slightly as exports fell by 0.7% month-on-month in May while imports fell by 0.3%. The deficit now stands at around $75.1 billion (£58.3 billion) and could be a drag on growth in the second quarter of 2024.

American cybersecurity company Crowdstrike saw its share price plunge by more than 13% when a software bug crashed an estimated 8.5 million computers around the world on 19 July. The error led to services grinding to a halt as it affected banks, airlines, railways, GP surgeries, and many other businesses globally.

Meta, owner of Facebook and Instagram, also saw its share price fall after the EU ruled it breached a new digital law. Meta’s advertising model that charges users for ad-free versions of its social media platforms that don’t use personal data for advertising purposes was found to breach consumer protection rules. Meta could now face fines of up to 10% of its global revenue.

Asia

A growing interest in artificial intelligence led to Japan’s Nikkei 225 index reaching a record high on 9 July, when it increased by 0.6%.

Over the last few months, statistics have suggested that China could face some challenges if it’s to maintain its pace of growth. However, data shows exports grew at their fastest rate in 15 months in June 2024 thanks to a boost in the sales of cars, household electronics, and semiconductors.

Year-on-year, Chinese exports grew by 8.6% to $307.8 billion (£258.8 billion). Over the first half of 2024, exports totalled a staggering $1.7 trillion (£1.43 trillion) – a 3.6% increase when compared to a year earlier. Coupled with weaker imports, it led to a record $99 billion (£83.25 billion) trade surplus.

Please note:

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

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

A salary sacrifice scheme could provide a valuable boost for both employers and employees. So, if your business does not already offer this perk, read on to discover some of the key reasons you might want to consider it.

According to a report in the Guardian, salary sacrifice schemes are more popular among larger businesses. It’s estimated that only around 5% of small- and medium-sized businesses currently have a salary sacrifice scheme in place. Yet, small businesses could have just as much to gain by introducing a salary sacrifice scheme.

Salary sacrifice reduces an employee’s income in return for non-cash benefits

In simple terms, salary sacrifice is an arrangement you make with an employee where they agree to reduce their earnings in return for a non-cash benefit of the same value.

For example, if an employee accepts lower earnings, they might instead receive:

Additional pension contributions
Childcare vouchers
A car or bicycle.

A salary sacrifice scheme could offer something your employees want or would benefit from over the long term.

In addition, as the employee’s income is lower, the amount they pay in Income Tax and National Insurance contributions (NIC) may fall.

Let’s say your employee earns £35,000 a year and is contributing 5% of their salary to their pension. In 2024/25, they’d usually pay around £4,136 in Income Tax and £1,794 in NICs.

If they choose to sacrifice £1,750 to receive additional pension contributions, they’d benefit from a boost to their pension savings. Their take-home pay would also rise as their NICs would fall to around £1,654. So, in this scenario, the employee’s short- and long-term finances would benefit.

As a result, from your employees’ perspective, a salary sacrifice scheme could help them get more out of their money.

Employers could also benefit from a lower National Insurance bill

It’s not just your employees that could benefit from lower NICs either – your business could too.

In the above example, if your employee agreed to reduce their salary from £35,000 to £33,250, in 2024/25, employer NICs would typically fall from around £3,574 to £3,332 – a saving of £242. If your entire team opted to join a salary sacrifice scheme, it could lead to a sizeable reduction in your NICs bill.

There are other potential benefits for employers too.

A salary sacrifice scheme can help your employees get more out of their earnings, which might have a positive impact on employee satisfaction, retention rates, and hiring new staff. It’s also a way to show you’re concerned about their financial wellbeing.

At a time when 66% of businesses told the British Chambers of Commerce they’ve faced challenges finding new staff, taking steps to show your employees they’re valued could prove worthwhile.

We can help you implement an appropriate salary sacrifice scheme for your business

If you’re considering setting up a salary sacrifice scheme for your business, we can offer support. From assessing the different options to calculating the financial benefit for your business, we could offer tailored advice that considers your needs.

Setting up a salary sacrifice scheme is just the first part of the challenge. You’ll also need to consider how to communicate the benefits to your employees and encourage them to opt in.

As a financial planning firm, this is an area we could offer support in too. We may be able to work with your employees to explain how a salary sacrifice scheme would affect their finances to demonstrate the value of the perk.

Monitoring how your employees view the salary sacrifice scheme and other perks you provide could also be useful. It may highlight when further education could be important, if changes should be made, or demonstrate to employees that their opinions are valued.

Yet, a study in HR Magazine suggests that more than half of employees have rarely, if ever, been consulted about benefits schemes that directly affect their work-life satisfaction.

If you’d like to benefit from our expertise when setting up a salary sacrifice scheme for your business, please contact us.

Please note:

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

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.

Workplace pensions are regulated by The Pension Regulator.

When you received your last promotion or pay rise, your first instinct might have been to celebrate by splashing out on a new gadget, booking a holiday or allocating more of your money to your disposable income. However, if you overlook reviewing your finances, “lifestyle creep” could affect your ability to reach long-term goals, including your retirement plans.

Lifestyle creep leads to your regular expenses rising

Lifestyle creep refers to your regular expenses rising in line with your income. So, after you’ve received a pay rise, your outgoings would start to creep up.

It can be more difficult than you expect to spot lifestyle creep. It might be as simple as choosing a more expensive bottle of wine when you’re at the supermarket or stopping by a café on the way to work each morning to pick up a latte. It could include larger expenses too. Perhaps you start to upgrade your phone every year instead of every three years, or eating out becomes a regular habit rather than a treat.

Over time, lifestyle creep can lead to former luxuries becoming your new essentials. If you don’t keep an eye on your budget, the amount you spend could rise much further than you expect.

According to a survey carried out by Aqua, 89% of Brits say they exceed their social budgets every month. The average person is spending around £61 more on social activities than they plan for.

When you consider how lifestyle creep could affect other areas of your spending, it’s easy to see how it could lead to your regular outgoings rising by far more than you initially thought.

On the surface, lifestyle creep might seem like it’ll have little impact. After all, the £3.50 you might spend on a coffee during your commute is small change. Yet, grab a coffee three times a week, and you’ve added almost £550 to your expenses over a year.

Increased spending means you can become dependent on a higher income. Once you’ve established a habit of spending more, it can be difficult to go back to your original budget.

Lifestyle creep could mean you don’t save as much for your retirement

Small rises in your regular outgoings might seem relatively small in isolation, but when they’re combined, they could add up to thousands of pounds unwittingly spent every year.

As a result, you might divert a smaller portion of your new income to your retirement. Contributing less to your pension, investment portfolio, or savings could have a much larger effect than you first believe, especially once you calculate the returns you’ve potentially missed.

Another way lifestyle creep could affect your future is by changing your desired retirement income.

According to a 2022 survey published in FTAdviser, the top retirement aspiration among those nearing the milestone is to maintain their standard of living. If your regular expenses have crept up during your working life, your pension might need to provide a greater income than you’ve previously calculated.

As a result, some retirees could find they face an income shortfall in retirement or risk using their pension too quickly and running out of money later in life.

A financial plan could help you strike a balance between enjoying today and securing your future

While lifestyle creep may be harmful to your long-term plans, you don’t have to put all your new income to one side for the future – it’s about striking a balance that suits you.

From planning an annual holiday to an exotic location to days out with your family, there are lots of ways you might plan to spend a pay increase. Making these expenses part of your overall financial plan could help you assess what’s right for you.

It may be worth considering which expenses add joy to your life when you’re prioritising them. For example, a cup of coffee on the way to work might become a habit that doesn’t improve your mood or outlook. On the other hand, regularly buying a coffee as you catch up with friends could be an important part of your social routine that you look forward to.

Creating a financial plan and being aware of lifestyle creep is about more than cutting back your expenses. It’s about being intentional with how you use your wealth now and in the future.

Contact us to talk about your finances and how to avoid the negative effects of lifestyle creep

If you’ve received an income boost or would like to review your finances, we could assist you in formulating a financial plan that could help secure the lifestyle you want. Please contact us to arrange a meeting.

Please note:

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

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.

In a historic victory, the Labour Party won a majority in the 4 July 2024 general election. After 14 years of Conservative government, you might be wondering what the change means for you and your financial plan.

Since Keir Starmer took office, a day has barely passed without headlines speculating about the changes Labour will enact. The news can affect your emotions and spur you to make decisions that don’t align with your financial plan.

For example, after reading that some investors are already acting to “protect their pension” from Labour, you might think you need to do the same. Or suggestions that Starmer could raise revenue by increasing the standard rate of Inheritance Tax may mean you start thinking about how to pass on wealth now.

Indeed, according to a poll from interactive investor, in the weeks before the general election, 15% of investors made changes to their portfolio, and a third considered doing so. Of those that did make changes, 30% said they were holding more money in cash, and a quarter said they reduced their exposure to UK investments.

While the markets may have experienced some volatility due to the uncertainty of the upcoming general election, this is often short-lived. History suggests that markets will recover as a new government sets out their agenda and some of the conjecture dies down.

For instance, Morningstar reported that the FTSE 100, an index of the 100 largest companies on the London Stock Exchange, increased slightly after the general election results.

It’s important to remember that investment returns cannot be guaranteed. However, if you’re making investment decisions based on political speculation, you could miss out. Some of those investors who tweaked their portfolio before the public headed to the polls might wish they hadn’t with the benefit of hindsight.

So, if you shouldn’t respond to speculation, how should you react to the new Labour government?

Sticking to your long-term financial plan often makes sense for most people

As difficult as it can be, doing nothing could actually yield better results than responding to the changing government.

Having confidence in your financial plan and sticking to it often makes sense for most people as decisions reactive to the latest news headline could lead to changes that aren’t right for you.

So, while there are still plenty of rumours about Labour’s plans over the next few years, try to tune out the noise. Instead, focus on your financial goals and how your financial plan was built to achieve them, including the steps you’ve taken to mitigate the effects of the unexpected.

It’s also worth noting that when the government announces changes that affect personal finances, they don’t usually come into effect immediately. For instance, changes to the tax treatment of different assets will often take effect when a new tax year starts on 6 April.

As a result, you don’t normally need to rush when responding. Instead, you can take some time to consider your position and how the changes may affect you.

We can help you assess the impact of government announcements on your financial plan

While reacting to speculation could be harmful to your financial plan, between now and the next general election, the Labour government could announce changes that do affect your personal finances.

As your financial planner, we’ll be on hand to help you assess what announcements mean for your finances and, if necessary, what steps you may take to reduce negative effects. Rather than making a knee-jerk reaction following announcements, we’ll help you review the changes in the context of your financial plan so you have the information you need to make decisions that are right for you.

We’ll help keep you informed about changes you might need to be aware of and when updates to your financial plan are appropriate as part of your regular reviews.

Contact us if you have any questions about your financial plan

If you’d like to review your financial plan or have any questions about how a Labour government could affect your wealth, please contact us. We could provide tailored advice that tunes out the speculation and focuses on the facts.

Please note:

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

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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 £400 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.

In addition, you may also need to include gifts when assessing if your estate could be liable for IHT. Some gifts may be included in your estate for IHT purposes for up to seven years after they are given, these are known as “potentially exempt transfers” (PETs). As a result, it may be useful to keep a record of gifts. If you’re unsure whether a gift is a PET, please contact us.

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.

Your relationship with money may play a huge role in how you handle financial decisions and your long-term security. Many factors affect your financial decisions, but you might be surprised by how much your childhood experiences still influence you today.

The majority of parents recognise how important financial education is. Indeed, according to Nationwide, almost 9 in 10 parents to children aged between 8 and 13 say personal finance education would help their children better understand the value of money. 59% also agreed that personal finances were more important than maths.

Yet, studies suggest these parents might be considering the positive effects of financial education too late.

Research: Money habits could be set by age 7

A 2013 study from Cambridge University indicated that financial habits are formed by the age of seven. The research suggests that children have often formed core behaviours by the age of seven which they will take into adulthood and could affect financial decisions for the rest of their lives.

While skills like being able to count money are important for handling day-to-day finances, the study recognised that other factors affected money relationships, such as the ability to regulate emotions and think reflectively.

Your approach to finances when you’re an adult might be just as much about your mindset as your financial knowledge.

For instance, you might understand the tax benefits of using a Stocks and Share ISA to invest in the future. However, letting emotions rule your decisions could mean you miss out on potential returns if you change your investment strategy during market volatility.

In fact, a report in FTAdviser previously suggested that emotional decision-making costs investors at least 2% in foregone returns each year. Over your investment time frame, those lost opportunities could add up to a substantial sum.

The Cambridge University research noted that once habits form, it can be difficult to reverse them later in life. However, it’s not impossible, so read on to find out more.

4 practical ways to overcome potentially harmful money habits

1. Understand your money habits

If you want to improve your relationship with money, a good place to start might be to take some time to understand your habits.

When you’re making changes to your investment strategy, are you more likely to base your decisions on facts or emotions? If you received an unexpected lump sum, would you splurge or use it to support long-term goals?

Retrospectively examining your financial decisions could help you identify patterns in your behaviour. You might realise that while you’re good at managing your day-to-day budget, emotions are more likely to have an effect when you’re handling long-term investments.

By understanding potentially harmful money habits, you’re in a better position to recognise when they could have an effect in the future.

2. Review your finances regularly

Busy lives can make keeping on top of your finances difficult. Yet, carving out time to regularly review your short- and long-term finances could also help you spot where money habits are harming your wealth or ability to reach your goals.

Seeing the effect money habits may be having on your finances may be useful when you’re trying to change your mindset. For example, if you’re often tempted to dip into your savings to cover non-essential expenses, seeing how it could affect your capacity to retire early, support loved ones, or overcome a financial shock could give you pause next time.

3. Give yourself time when you’re making financial decisions

Sometimes poor money decisions stem from not giving yourself enough time to think through your options or the long-term implications. So, next time you’re making a decision that could affect your financial future, don’t decide right away.

Allowing yourself a few days to think it through could mean emotions or other factors that were influencing your decision have subsided. It could help break negative money habits and start to form new ones.

4. Work with a financial planner

A financial planner doesn’t just help you navigate areas like tax liability or how to use a pension, we can help you manage your money more effectively too.

Having a tailored financial plan in place can highlight how you may work towards your larger goals and the effect day-to-day decisions might have. It could help you overcome previously established money habits that could harm your long-term financial security.

In addition, you have someone to talk to when you’re making large financial decisions. Discussing your options can be a useful way to process information and look at your options from a different perspective. It could lead to you making decisions that have a better long-term outcome.

Contact us to arrange a meeting to talk about your finances

If you’d like to discuss how we could help you manage your finances with your circumstances and goals in mind, please contact us.

Please note:

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

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Imagine you could time travel to understand how your financial decisions today might affect your lifestyle in 10 or 20 years. You may be in a better position to turn your goals into a reality. Read on to find out how working with a financial planner could give you a glimpse into the future.

Time travel films and books offer plenty of warnings about the perils of changing the timeline – even a seemingly small change can have a huge impact. With this in mind, a “time travelling” financial plan could help you make better decisions as it could enable you to see the effect they might have on your long-term security and happiness.

The good news is that you don’t need a DeLorean or the help of an eccentric scientist to look at your financial future.

Cashflow modelling could let you see the impact of the decisions you’re making

Cashflow modelling might not sound as exciting as hopping into a time machine, but it can be an invaluable tool when you’re creating a long-term financial plan.

To start, you’ll need to input data into a cashflow model. This might include the value of your assets, like savings, investments, or property, your regular income, and your outgoings. You’ll also want to add the financial decisions you’ve already made. For instance, how much you’re contributing to your pension each month.

With the basic information added, you can make certain assumptions to predict how your assets might change over time. So, you might include your investment portfolio’s expected annual rate of return to understand how the value could change or consider how inflation may affect your expenses.

The results can then help you visualise your assets and financial security in the future. With this information, you can start to understand whether you’re on track to secure the future you want.

In some cases, you might identify a potential gap, which could lead to you adjusting your plans or making changes to your finances now so you can reach your goals. Again, you can use cashflow modelling to assess changes.

Adjusting your cashflow model may help you understand alternative outcomes

One of the most useful benefits of cashflow modelling is that it doesn’t just allow you to see the outcome of the actions you’re already taking. You can also model other scenarios.

So, you could see how adjusting your decisions now might improve your ability to reach your goals or even make aspirations you previously thought were out of reach achievable.

For example, you could model how:

Retiring early may affect how much you can withdraw from your pension sustainably
Increasing your pension contributions might afford you a more comfortable retirement
Using your savings to travel the world now may impact your long-term financial security
Boosting your regular investment contributions could grow your wealth over a long-term time frame
Gifting inheritances to your children and grandchildren now will affect the value of your estate in the future.

As a result, using a cashflow model to understand the long-term implications of alternative options could help you find the right approach for you. Understanding the various possible outcomes may give you the confidence to adjust your actions and stick to a long-term financial plan.

It’s not just your behaviours you can model either, but unexpected events or changes outside of your control. Understanding the effect of a market downturn or period of illness where you are unable to work might enable you to create a safety net that offers you peace of mind.

Of course, the results of a cashflow model cannot be guaranteed and factors outside of your control, such as investment volatility, might also affect the outcome. Even so, it can be a valuable way to identify potential shortfalls or opportunities.

Contact us to time travel and discover how you could reach your goals

If you’d like to take a look at your financial future and understand what it could mean for your lifestyle, please get in touch. We can help you assess how the decisions you make could affect your goals.

Please note:

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

The Financial Conduct Authority does not regulate cashflow planning.