As Dorset financial expert Peter Harding explains, there comes a point in life when thoughts turn to what happens after we’re gone, with this likely to include considering how best to pass on any assets we may have.
The importance of planning often begins with Inheritance Tax (IHT) planning. While few estates actually pay IHT, the 40% tax charged on assets above the nil-rate band and the Residence Nil Rate Band makes it a risk not worth taking.
When you’re trying to come up with a plan for passing on wealth, traditionally it’s about trusts, property and so on but people are increasingly using their pension pots. A pension has long been one of the most tax-efficient ways to pass on wealth.
For example, if you die before you turn 75 and you haven’t accessed your pension, your beneficiaries can receive all of it tax free, provided they claim it within two years of your death. It’s important to get to grips with the pension rules and ensure you’re using them to your advantage.
You could also consider gifting. This is money you can give away while still alive to reduce the IHT bill, so it should be part of your tax planning. For example, you can give away a total of £3,000 worth of gifts each tax year without them being added to the value of your estate (and you can use the previous year’s allowance, too, if you haven’t already).
Retirement continues to change, with implications for how inheritance planning works. Advice is especially crucial here to balance your own needs and those of your loved ones.