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Sixty per cent of older Brits are still in the dark when planning their inheritance, says Barclays Wealth


New research from Barclays Wealth has revealed that confusion still remains when it comes to handing down wealth to the next generation, and the ins-and-outs of inheritance tax.

Whilst using an ISA and making the most of tax-free allowances is the golden rule to effective financial planning, as no income tax is paid on the interest or dividends received and any profits are free of capital gains tax (CGT), a third (29 per cent) of Brits mistakenly believe that ISAs are also exempt from inheritance tax. 

Surprisingly, uncertainty is particularly rife amongst the older age group (45-54 years), as 60 per cent admit to having no idea if their investments will be subject to inheritance tax when passed onto family. Brits are equally baffled when it comes to gifting property, as over a quarter (26 per cent) don’t know if the value of their property is considered separate to the rest of their financial assets. 

Lee Platt, Wealth Planner at Barclays, says: “With more people wanting to plan for their future, it’s really important that we raise awareness of the ins-and-outs of inheritance tax. 

“There’s clearly still some confusion around exactly how inheritance tax works, and a gap between people’s understanding of what they’re leaving to the next generation, and the reality. 

“We’d always encourage people to have these conversations with their family ahead of time – and read-up on the different allowances and rules around taxation, to make sure you fully understand the implications for your estate – giving yourself enough time to plan and make the most of any allowances. 

“If you’re at all unsure, particularly where large figures are involved, consider seeking advice to best understand your position and the options available to you and your family.” 

Platt also reveals the top mistakes Brits make when planning their estate, and shares some tips to raise awareness around the topic: 

Don’t leave it too late: The older you become, the fewer options there are available when it comes to planning and inheritance tax, so make sure you give yourself enough time to make the most of any tax-free allowances. Whilst it’s unfortunately not true that assets kept in an ISA are exempt from inheritance tax, every tax year you get what’s called an ‘annual exemption’ which allows you to give financial gifts, tax free, to the value of GBP3,000 without them being added to the value of your estate. 

Make the most of exemptions: There are a number of specific situations, outside of your annual exemption, where you can give tax-free gifts. This includes payments to help with another person’s living costs (ie to support a child under 18), normal gifts out of your income (birthday and Christmas presents, for example) and wedding gifts. For grandchildren, wedding gifts can be given up to a value of GBP2,500 – without being added to the value of your estate.

Be aware of inheritance tax and the seven-year rule. It’s easy to think that, should you pass away, your assets will go instantly to your family, and many people aren’t aware of the rules. It can be complex, but broadly speaking inheritance tax is only paid if the value of your estate sits above GBP325,000. It’s charged at 40 per cent, but only on the value of your estate above that threshold. If you decide to give away your home to grandchildren or any other direct descendants, the threshold can rise to GBP500,000. Gifts that don’t fall into your tax-free bracket are known as ‘potentially exempt transfers’ – which essentially means that they will fall out of the value of your estate for inheritance tax purposes after seven years. Should you die within that time, tax would still be due.    

Don’t delay over concerns on losing control. Over a third (35 per cent) of people think they’ll lose control over any gifts made to family during their lifetime. This doesn’t have to be the case – Discretionary Trusts run for up to 125 years and allow you to indirectly gift money to beneficiaries, offering a more flexible platform that you can adapt around your needs. However, it’s worth noting that the gift is only given in the event of your death. While the money is still held in the Trust, you can keep some control over how it’s spent – if you pass away, care of the trust is given to a Trustee (a son or daughter for example), who will then manage the trust until the time is right for the beneficiary to take control. 

Keep a robust record of gifts. Documenting any gifts you make – including when it was made, to whom, and the amount – will really reduce the stress and delay for loved ones when dealing with the administration of your estate at death. 

Seek advice, if in doubt. Estate planning can be a complex area and, where possible we’d always recommend that people seek advice to fully understand their options and work out the best plan for their needs and objectives. Remember too that tax rules may change in the future and their effects on individuals will depend on their circumstances. 

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