Leaving a legacy
You’ve worked hard to create wealth. You may have taken risks, devoted long hours to building a business, or made sacrifices to establish your investment portfolio.
At the same time you’ve probably paid considerable amounts of tax, be it Income Tax, Corporation Tax, Capital Gains Tax, Stamp Duty, or National Insurance. And then, of course, there’s Inheritance Tax (IHT).
While IHT may be a concern for you and your heirs, there is more to estate planning than simply trying to reduce the Chancellor’s slice of your legacy.
As a starting point, it’s important to think about what you would want to happen to your wealth on your death. For instance:
- What should any surviving spouse or partner inherit?
- Who are your (other) chosen beneficiaries?
- Are there specific items you want to leave to particular people?
- What framework – if any – is needed for your bequests? For example, you might be happy to leave capital outright to a 40 year-old architect daughter, but the same may not be true of a 19-year old student son.
Inheritance Tax: the basics
At its simplest, IHT is a 40% tax, generated on your death, that applies to the amount by which your estate exceeds the nil rate band (currently £325,000).
While most estates are too small to be subject to IHT, those that are above the starting point face an average bill of nearly £170,000.* If you think you’ll leave an IHT bill, you should either make provision for it (for instance, through a Life Insurance plan), and/or consider taking advantage of the various reliefs and exemptions that can help reduce your liability.
You can also make a number of gifts during your lifetime that will be IHT exempt – unless they are made within seven years of your death, in which case IHT will apply.
Where there’s a Will…
A Will is key part of successful estate planning – not just because it sets out what you want to happen after your death, but also because it covers a number of other important aspects.
For instance, if you die without a will, the rules of intestacy determine how your estate will be distributed. As well as creating the potential for family squabbles, this is unlikely to reflect your wishes and it could create an unnecessary IHT bill.
The importance of professional advice
In theory estate planning is simple: to avoid any inheritance tax you need to make sure you’ve made sufficient gifts, long enough ago, to mean that on death (with a valid Will) your estate is worth less than the available nil rate band. With professional advice, you can create robust plans that will help you achieve this.
Note: Will writing is not part of the Openwork Limited offering and is offered in our own right. Openwork Limited accepts no responsibility for this aspect of our business.
Will writing is also not regulated by the Financial Conduct Authority
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