No matter how old they are, your children will always be your children. That basic instinct to help and protect them never goes away – and it’s only natural to want to do all you can to help them get on in life. But balancing that with your own financial needs can be tricky. 

Right now, the majority of the UK’s wealth is in the hands of the over 50s and it’s estimated that over the next 30 years, an eye-watering £5.5 trillion will be passed onto the next generation. That’s a lot of money passing hands – and the scary thing is, without good and effective planning, a big chunk of that could end up with the taxman. 

Planning for the future

We understand it’s not a topic that you want to dwell on. But unless you want 40% of your children’s inheritance to be wiped out in Inheritance Tax (IHT), it’s worth getting some estate planning advice. And you may even want to think about passing some money onto your children now – so they can get the benefit of it while you’re still around to see it. 

Here are four of the simplest ways you can safeguard your wealth and pass it on in the most tax-efficient way. 

1. Inheritance

First things first. The simplest way to leave money to your loved ones is to have a will. With that, you can state who you want to inherit and how you want everything to be divided up. If you die and there’s no will in place, then the state will decide what happens to your estate – and you’ll have no say in it. 

 2. Gifting

If you have a good grasp on your financial picture, you might decide that you can afford to ‘gift’ some money to your children while you’re still alive. By reducing the value of your estate in this way, it will help to limit the impact of IHT later – and mean you can offer support to help pay for a wedding, for your kids to get on the housing ladder, or just have a nice family holiday. With the annual exemption, each parent can gift up to £3,000 a year tax-free.

 3. Trusts

Did you know that if you have a life insurance policy, the value of that will form part of your estate – and if it goes over the £325,000 tipping point, your loved ones will have to pay IHT on it? A simple way to get around this is to arrange for the proceeds of the policy to pass into a trust when you die. A trust is a legal arrangement where assets are held by a trustee on behalf of the beneficiary. And trusts aren’t generally classed as part of your estate when calculating IHT. 

 4. Pension

When considering what you can leave to your family, don’t forget to factor in your pension fund. In many cases, it’s possible to pass your pension benefits onto the next generation. If you die before you’re 75 and haven’t taken any of your pension, your unused pot remains outside of your estate for IHT purposes. So you can pass 100% of it onto anyone you choose. If you’re over 75 when you die, your beneficiary will pay tax on the amount they receive at their normal rate.

None of us knows what the future holds, but if you can afford to give your children a good start in life and pass on some of your wealth now, that could make better sense than holding onto it all until you die. Of course, the very best course of action is to talk to an estate planning expert who can help you decide what you can afford to give away now – and protect the rest so your children get the maximum benefit from it. 

If you’d like some help to put plans in place for your next generation, please feel free to give us a call on 01372 365950.

Allowances correct as of 21st May 2021