Why inheritance planning matters
Planning for the future isn’t just about growing and preserving your wealth, it’s about ensuring it ends up in the right hands when you’re no longer here.
Inheritance planning is your opportunity to shape the legacy you leave behind, a clear plan helps you protect your loved ones, reduce legal complications, and minimise inheritance tax. Your estate includes everything you own – such as your home, other property, vehicles, savings, investments, and personal possessions, like jewellery. Without a plan, your assets may be distributed according to legal rules, which might not reflect your wishes. Worse still, your loved ones could face unnecessary delays, costs, or tax bills.
Thinking about death can be an emotional subject. But having conversations with family about what you want your estate to achieve can go a long way. And doing this sooner rather than later can be especially beneficial as it could give you more opportunity to make better use of tax allowances.
How does Inheritance Tax work?
- Gifting
- Trusts
- Making a will
Gifting is the tax term given to passing money to people or causes you care about while still alive
It allows you to see first-hand the support it brings. And if managed well, it can reduce the value of your estate and lower the Inheritance Tax bill your loved ones might face. But how you time and structure your gifts has an impact.
Most gifts become tax-free if you survive seven years after making them. If you pass away sooner, the gift may still be taxed – although the rate decreases over time:
Years between gift and death | Tax rate |
Less than 3 | 40% |
3 to 4 | 32% |
4 to 5 | 24% |
5 to 6 | 16% |
6 to 7 | 8% |
7 or more | 0% |
Not all gifts are subject to the seven-year rule
You can give the following without triggering Inheritance Tax:
- Up to £3,000 each tax year
- Up to £250 to as many people as you like (if not using other allowances)
- Wedding gifts: £5,000 for children, £2,500 for grandchildren, £1,000 for others
- Gifts to charities and political parties
Tax rules can change and the impact of taxation and any tax relief depends on your circumstances, including where you live. It’s also good practice to keep record of what gifts you make, who received it, at what time, and the value it was when you made it.
Trusts can be a powerful tool in inheritance planning
They allow you to pass on wealth in a controlled, tax-efficient way – ensuring your assets are used exactly how you intend. For example, you might dictate that a child can only access it once they reach a certain age.
It’s a legal arrangement where you transfer money, property or investments to a trustee. The trustee then manages those assets on behalf of your chosen beneficiaries. Once placed in a trust, and provided certain conditions are met, the assets are no longer considered part of your estate. This means they may not count towards your Inheritance Tax bill when you die.
Any gifts you make into a trust can't be used for your benefit, so you need to be sure you can afford to make them. There are different types available – each with varying tax rules – so you need to understand what’s appropriate for your needs and circumstances. We recommend you get financial advice to know if a trust is right for you.
A will is a legally binding document which states what should happen to your money, property, assets, and other things you own after you die
It’s a cornerstone of any inheritance plan, and an opportunity to make your wishes crystal clear. It can be set up with the help of a solicitor, and its best to regularly review it to keep it up to date. This is especially true following major life events, such as marriage, divorce, or the birth of a child.
Without a will, your estate is distributed according to intestacy rules – which may not reflect your intentions. Make sure to keep your will safe, and let the person (or people) you’ve appointed as executor(s) – those who carry out your instructions – know where to find it. We don’t have the ability to create wills, but we can we help put you in touch with those who can.
It's also worth noting that pensions aren’t covered in wills, so need to be accounted for separately. This includes selecting your beneficiaries of who should receive leftover income, if your plan allows this. Financial advice can help.
Power of attorney
A power of attorney lets you appoint someone you trust to make decisions on your behalf if you're ever unable to do so – whether due to illness, accident, or age-related decline. It can play an important role in inheritance planning that protects your interests while you're still alive. There are different types, including those for property and financial affairs, and for health and welfare.
Without a power of attorney, the court may appoint someone to manage your affairs – who may not be someone you'd otherwise have chosen. Setting one up early ensures your wishes are respected, and could reduce unnecessary stress for loved ones. We can help put you in contact with experts who can help set one up.
Wills and power of attorney aren’t regulated by the Financial Conduct Authority.
Need more help?
Want to know more about financial advice?
Financial advice can help you navigate complex tax rules, structure your estate efficiently, and ensure your wishes are carried out smoothly. It can support you in developing a tailored strategy which aligns with your personal circumstances, potentially saving your loved ones time, stress, and money.
Effective inheritance planning takes a lot of time and effort. It’s not a one-and-done either, it needs regular reviews to ensure your plans remain on track.
How can we help you?
