Secure your wealth for retirement and future generations
If you have accumulated wealth throughout your life, it is never too early to begin planning for the funds you need now and in the future, while also ensuring that any remaining wealth is distributed to your chosen beneficiaries as tax-efficiently as possible.
Before considering transferring wealth to others, it’s crucial to ensure you (and your spouse or partner) have sufficient income for your retirement years. Begin by assessing your spending needs during retirement.
This encompasses essential day-to-day living costs, ‘nice-to-haves’ such as holidays or hobbies, and any one-off expenses that may arise. Equipped with this information and your sources of retirement income, we can assist you in developing a plan to ensure your wealth lasts for as long as you require it to.
Consider the expenses of long-term care
Your health needs may change as you age, and it is essential to consider the possibility of requiring long-term care. Care costs can significantly reduce your wealth, but there are strategies available to help protect it.
Seeking professional financial advice is crucial, as funding for long-term care can be intricate. We can assist you in understanding your options, from care insurance policies to utilising existing assets in a tax-efficient manner.
Once your retirement needs are secured, you can start contemplating what you wish to pass on to your loved ones, when to do so, and how to do it efficiently.
Understanding the effects of Inheritance Tax
Inheritance Tax (IHT) can significantly diminish the wealth inherited by your beneficiaries. To manage this, it is essential to grasp how IHT operates. No IHT is owed if the value of your estate is below £325,000 (the nil rate band). However, amounts exceeding this threshold are taxed at 40%.
For married couples or registered civil partners, there is usually no IHT on assets transferred between them. Moreover, unused allowances can be passed to the surviving partner, potentially increasing the threshold to £650,000.
Leaving your family home to direct descendants can provide an additional residence nil rate band (RNRB) of £175,000, raising the total allowance to £1 million for couples. Estates exceeding £2 million may face a reduction in this allowance, so advance planning is crucial to maximise these benefits. The government has confirmed that the nil-rate band and residence nil rate band will remain frozen until at least 2030.
Maximise wealth transfers through gifting
Gifting is a way to pass on wealth during your lifetime. For instance, you can gift up to £3,000 each tax year exempt from IHT. Additionally, smaller gifts of up to £250 per recipient are also exempt, provided these beneficiaries haven’t utilised other allowances.
Regular gifts made from surplus income or larger ‘lifetime’ gifts may also be exempt from IHT, provided you survive at least seven years after making them.
This method of wealth transfer not only diminishes your estate’s value for tax reasons but also enables you to witness your loved ones enjoying the financial advantages during your lifetime.
Are trusts a suitable alternative for you?
Placing assets in a trust can be an effective solution for larger estates or more intricate family dynamics. Trusts not only protect assets from IHT after seven years but also provide control over how and when beneficiaries access the funds. This can be particularly beneficial if you wish to support children or grandchildren over time.
We can assist you in determining the suitable trust structure for your circumstances, ensuring that your estate planning aligns with your goals and provides the necessary flexibility.
Safeguard your estate with appropriate legal documentation
Having the appropriate legal documentation is essential for safeguarding your estate and ensuring that your wishes are fulfilled. Keep your Will current, particularly after significant life events such as marriage, the birth of a child, or divorce.
Additionally, establishing a Lasting Power of Attorney (in England and Wales) or a Continuing Power of Attorney (in Scotland) is essential. This legal document appoints someone you trust to make decisions on your behalf if you become unable to do so.
Proper record-keeping is crucial, and it’s essential to inform the relevant individuals where these documents are kept.
This article does not constitute tax, legal or financial advice and should not be relied upon as suchTax treatment depends on the individual circumstances of each client and may be subject to change in the future. For guidance, seek professional advice. The value of your investments can go down as well as up, and you may get back less than you invested.
