Start with a conversation
Families need to have the ‘grown up’ version of the birds and the bees talk.
Proper, advance planning could save up to 40 % on death duties. Instead, parents leave their children unprepared and potentially storing up future problems. This is even more critical when family businesses are involved as there are important inheritance tax (IHT) reliefs available for people passing on the family business or partnership assets.
In 2017/18, taxpayers paid a total of £5.2 billion in IHT; up to £2 billion of this could have been saved with the right advice to help navigate inheritance tax rules.
It’s important that families talk about inheritance so they can plan. Not only will everyone be clear on what to expect, which can prevent family conflict further down the line, but it means as much of your hard-earned money as possible is passed on to loved ones.
So what’s the situation?
Charles Stanley’s research among more than 2,000 parents of children aged 18 or older, as well as millennial-aged adults aged 18-30, also found that:
• 24 percent of parents with adult children have talked openly to them about the issue of inheritance.
• 30 percent of parents have talked to their family about their will.
• 36 percent of parents have made their children executors of their estate, although only 11 percent of young people are aware that they are an executor.
The most common reason for not discussing inheritance is because the subject is just too awkward.
What action can I take?
With proper planning, the impact of IHT can be minimised by taking advantage of legitimate exemptions, although many of these can be complex which is why they are often missed.
Importantly, the longer you leave it, the fewer options you have. For example, shares in private unquoted companies are subject to IHT, but if they have been held for two years, and meet certain other criteria, they may qualify for business relief. If they qualify, then the shares can be transferred on death or during lifetime and are not subject to IHT.
A significantly underused tax break is ‘Additional Permitted Subscription’ (or ‘APS’), which allows the partner of a deceased person to transfer the value of their deceased spouse’s ISA to their own name, without incurring any tax charge (save for inheritance tax). Figures from HMRC showed 21,000 people used the APS allowance in the last tax year, but in contrast an estimated 150,000 married ISA investors pass away each year.
Start planning now
In summary, the sooner you start to plan, the more options you have available to you to maximise your assets.
The value of investments can fall as well as rise. Investors may get back less than invested.
Charles Stanley is not a tax adviser. Information contained in this article is based on our understanding of current HMRC legislation. Tax reliefs are those currently applying, and the levels and bases of taxation can change. Tax treatment depends on the individual circumstances of each person or entity and may be subject to change in the future. If you are in any doubt, you should seek professional tax advice. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.