More families tackling the inheritance taboo
More families are tackling the ‘taboo’ question of inheritance but far too many still admit to never discussing it, according to research by Investec Wealth & Investment.
The study found that nearly half (44%) of adults have never discussed what they stand to inherit financially, if anything, with their parents. This compares to three quarters (74%) of adults in 2012, when the research was last commissioned by the wealth management and financial planning firm.
When asked why, around a quarter (24%) said they were concerned they would appear money grabbing and think their parents would be upset if they raised it, while two-fifths (40%) did not want to think about their parents passing away. One in 20 (5%) said they thought their parents would be upset that if they raised the issue with them.
Two in five admitted that they would not talk to their parents about inheritance under any circumstances. Three in ten said they had a good idea about what, if anything, they will inherit, with a quarter (24%) saying they had no idea at all.
“It’s better to get the subject into the open”
Chris Aitken, head of financial planning at Investec Wealth & Investment, says: “It’s good to see that more people are discussing the ‘taboo’ issue of inheritance with their parents. While it is a tough thing to do, it can be very important to broach the subject at a sufficiently early stage so that measures can be taken to reduce the impact inheritance tax (IHT) can have on a family’s assets.
“Experience tells us that it is better for parents and children alike to get the subject into the open and we’d encourage parents to take the lead in this regard. It’s no surprise that many people report finding it hard or impossible to raise the subject with their parents.”
- Read some lessons from literature in Inheritance tax – then and now.
You can give away up to £3,000 each tax year free of IHT
Rising property values, particularly in London and the South East, are forcing more families into the inheritance tax net. This can reduce assets worth over £325,000, including property, by 40%. Fast-changing legislation means keeping abreast of inheritance and estate tax planning has become more challenging.
When ex-Chancellor George Osborne announced the introduction of a new main residence nil-rate band in the Summer Budget 2015, he met the Conservatives’ long-term promise of raising the inheritance tax (IHT) threshold to £1 million.
But while it’s a nice round number, the new rules contain plenty of complexities that may require something of a re-think when it comes to your IHT plans. Help is at hand though with Moneywise’s guide to the new inheritance tax rules.
Sean McCann, chartered financial planner at NFU Mutual says: ‘’Making gifts to help out the younger generation can be a very effective way to reduce any future inheritance tax bill. While you normally need to survive seven years for a gift to be free of IHT, there are exemptions. You can give away up to £3,000 each tax year free of IHT, and if you haven’t used the previous year you can go back one year and get it, allowing you to give away £6,000 immediately free of IHT.
“One of the most valuable but least known exemption is the ‘Gifts out of normal expenditure’. It allows you to give away an unlimited amount of ‘surplus’ income, exempt from IHT provided the gifts are regular and do not impact on your normal standard of living. The big benefit is that there is no need to survive for seven years for it to work.
“After making the gifts, you must be left with enough income to maintain your normal standard of living. The exemption will not be available if you have made gifts out of income and then have to resort to capital to live on. The exemption is not given automatically, and needs to be claimed after death. Keeping records of your income, expenditure and evidence that you intended the gifts to be regular will make it easier for your family to make a claim.”
The tax levied on the total value of your estate after you die. IHT has to be paid by the beneficiaries of your estate before they can receive any of the money from it. The money can’t be taken from the value of the estate _– it has to be paid before any money can be released. There is an IHT threshold – known as the “nil-rate band” – below which no tax is levied (£325,000 in 2011/12). Any amount above the nil-rate band is subject to tax at 40%. If your estate totals £600,000, there is no tax on the first £325,000; however your estate will pay 40% tax on the remaining £275,000, a total of £110,000. Prudent tax planning can reduce your IHT liability, so always consult a specialist solicitor.
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.