Category Archives: Inheritance Tax

Inheritance Tax – Could there be a better alternative?

Inheritance tax is enormously unpopular to say the least. A YouGov poll found that 59% of the public deemed it unfair, making it the least popular of Britain’s 11 major taxes. What’s more, the tax has a limited revenue raising ability, with the ‘well advised’ often using gifts, trusts, business property relief and agricultural relief to avoid paying so much.

 

As it stands, the tax affects just 4% of British estates and contributes only 77p of every £100 of total taxation. This puts the tax in the awkward position of being both highly unpopular and raising very little revenue. At the moment, the inheritance tax threshold stands at £325,000 per person. If you own your own home and are leaving it to a direct descendant in your will, this lifts the threshold by an additional £125,000 in the 2018-19 tax year (the nil-rate band), to £450,000. Anything above this is subject to a 40% tax.

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Aretha Franklin: The ‘Queen of Soul’ who died without making a will

On 16 August, Aretha Franklin passed away, aged 76, in hospice care after battling pancreatic cancer. She didn’t leave a will. This leaves her four sons and other family members to work out her total assets and divide them amongst themselves.

After the mourning process, the practical concerns around a death take hold. When someone dies without a will, these are much more complicated to resolve. And when the person concerned is a celebrity, these complications have an unfortunate tendency to play out on the public stage. Continue reading

Are children’s pensions as good as they seem?

Pensions for children? Surely that’s taking planning ahead to a whole new level?

Nonetheless, if you can afford it, putting money aside in to a pension for your children or grandchildren can be a sensible option.

Under the current rules, you can put £2,880 a year into a junior self-invested personal pension (SIPP) or stakeholder pension, on their behalf. Even though the child won’t be a taxpayer, 20% is added to the amount in tax relief, up to £3,600 per annum. If you think about it, that can result in quite a significant amount over the years, taking compound growth into consideration. Continue reading

How to best help your grandchildren financially

 

Being a grandparent is an exciting time of life. You get all the enjoyment of doing fun activities with your grandchildren but can hand them back at the end of the day. Part of that pleasure is knowing that you can help them financially. Often you’re at a stage of your life where you’re comfortably off and in a position where you want to give a helping hand to the next generation.

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Can we make inheritance tax simpler?

Inheritance tax (IHT) has existed in the UK for over 300 years. In its current form, it was brought in to replace the old Capital Transfer Tax; a measure that was brought in itself as a form of wealth distribution in order to regulate disparity between rich and poor.

Although in concept the idea is quite simple, in reality, the caveats and bureaucracy surrounding it in its present form can make it difficult to get your head around. In fact, this January, Chancellor Philip Hammond called the current system “particularly complex” and appealed to the Office for Tax Simplification (OTS) to hold a review of it. In his communication with them he stated: “I would be most interested to hear any proposals you may have for simplification, to ensure that the system is fit for purpose and makes the experience of those who interact with it as smooth as possible.” Continue reading

Can I use equity release to pay for care?

It’s one of the scary things about growing old, isn’t it? We’re all living longer, thanks to medical science but does that mean more of us are going to end up in a care home, struggling to find the means to pay for it?

A year in a care home can cost more than £50,000. This means some families are accumulating huge bills. If you have assets of more than £23,250 (slightly more in Scotland and Wales), the law states that you must fund all your care costs yourself, without any help from the Local Authority. This figure includes property, so if you have your own home, you won’t be eligible for any support.

As a result, many families are finding themselves facing a significant gap when it comes to funding care for their loved ones. This added financial burden comes at what can often be a sad and stressful time anyway.

One way some families are funding the cost of care is through the value of their home; equity release or a lifetime mortgage, as it is sometimes known. This allows anyone over 55 to bor

Row of typical English terraced houses in West Hampstead, London

row against the value of their home. You can draw money to about 50% of your property’s value and there are no monthly repayments. The interest rolls up at a compound rate until the person borrowing the amount dies. To protect you, the total debt can never exceed the value of your home and will be cleared from the eventual sale of the property.

It’s worth noting that interest rates tend to be higher than standard mortgages but there are no affordability checks or repayment plans. You can decide whether you take the money as a lump sum or in stages.

There are different ways of using equity release. Most people would prefer to stay in their own home for as long as possible rather than move into a home, so one option can be to use the money to make home improvements and adapt the property to their needs as they grow older. Installing a wet room or a moving a bathroom downstairs, for example, can often be practical solutions.

It is more difficult to use equity release to fund care home costs. In fact, according to a Daily Telegraph survey in 2017, only 1% of respondents gave that as a reason, compared with debt repayment, inheritance gifts, home improvements or to boost disposable income. The complexity stems from the fact that the repayment of the loan is often triggered by the very act of someone moving into long-term care. If one half of a couple, however, needed to go into a care home, it does mean that the property would not need to be sold to repay the debt until their partner died or moved into the home with them.

It’s obviously difficult to predict the length of someone’s stay in a care home so equity release may not always be a straightforward decision but, in some cases, it can be a useful option for quick, upfront funding.

The upsides and downsides of downsizing

Row of typical English terraced houses in West Hampstead, London

If your family has grown up and flown the nest and you’re moving closer to retiring, it’s likely that you’ve at least thought about downsizing your home. For some it can be for practical reasons, for others it might be a desire to be closer to their children if they’ve relocated, for others still it might simply be the desire for a change of scenery as they move into the next chapter of their life. But there are pros and cons to downsizing which need to be considered before you make what is always going to be a fairly major personal and financial decision. Continue reading

Talking about your will – don’t be one of the 93%

A national saving and investment survey has shown only 7% of people have spoken to their parents about inheritance. One of the most important parts of planning to leave an inheritance is to talk about it. This is obviously not an easy topic and it may be a good idea to set aside some specific family time to have this discussion. This could help avoid any family disputes before and after you are gone. Continue reading

How can you tell if your accountant is embracing the future

When choosing an accountant, there are obvious factors that you’ll take into consideration. Of course you’ll want someone who is completely trustworthy and highly competent, but one area you may not think of straight away is whether your accountant is someone whose methods are stuck in the past. A good accountancy firm will be open to adapting their practices in order to keep up with modern business practices. Here’s a rundown of five things to look out in an accountant who is ready for the world of tomorrow. Continue reading