Opportunity to plan

Atkins Ferrie Wealth Management explain that it’s never too early to start considering how your estate will be passed on.


You pay tax all your life on your earnings, savings, investments and pensions, then the government wants another slice when it comes to passing on your estate. It does not seem fair, although some would argue that we all need to be paying our taxes to help the UK economy. What if you could do both?

Inheritance Tax (IHT) is a tax paid on any money or assets (the estate), exceeding the relevant threshold, that are left when you die. For the tax year 2020/21 the threshold is £325,000; the value of any assets below this amount will not be subject to IHT, however, anything over that amount is subject to a 40%* deduction of IHT (*36% if more than 10% of the estate is left to charity).

If you’re married, or in a civil partnership, you can pass assets to your partner tax-free. You can also pass on any of your unused threshold to your partner. If you’re leaving your main residence to your children, an additional ‘main residence nil-rate band’ (MRNRB) will be applied (subject to conditions and qualifying criteria). In 2020/21, Atkins Ferrie Wealth Management explain that this band is £175,000, and will increase in line with the Consumer Price Index (CPI) in years to come. If your estate is valued over £2million, the extra threshold provided by the MRNRB will be tapered by £1 for every £2 that the estate exceeds £2million.

So what can you do to alleviate the burden of IHT? A simple way of reducing your estate is to ‘gift’ your assets away. However, there are limits to the extent to which you can do this. Alongside gifts, you can reduce your potential IHT liability, through Potentially Exempt Transfers (PET), Chargeable Lifetime Transfers (CLT), and Gifting into a Trust.

In addition to this, did you know that you can help the UK economy whilst at the same time cutting your IHT and thereby pass more money onto your heirs? First introduced in 1976, Business Relief has since been widened and extended so that more people, not just business owners, can benefit. In order to benefit from Business Relief, and in order to help the UK economy and help create jobs and taxes, you do have to invest your money.

So what types of investments can benefit from this relief? The answer, is that they vary from less volatile capital preservation products with lower target returns, to Alternative Investment Market (AIM) portfolios, which offer greater potential returns, but inherently present greater risk.

As the UK economy ultimately benefits from these types of investments, the government makes the investment 100% exempt from IHT after just two years, if the shares are still held at the time of death. The investor also maintains access to the investment, as it is simply that – an investment.

Many of Atkins Ferrie’s clients use these plans because of the flexibility they offer. Very few people are in the fortunate situation of being able to give away large sums of money, as they do not know how much they may need in the future. Also, as we are all living longer and care costs are spiralling, it’s reassuring to know that if you need your money, you can access it at any time. But if you do not need it, or have not spent it all, then whatever is left will be free from IHT. Saving up to 40% in tax, taking the opportunity to plan how your estate will be passed on is certainly worth considering.

Estate planning is a complex area with many interlinked issues. If you would like to discuss your options or would like some help or advice, please call the advisers at Atkins Ferrie Wealth Management on 01872 306422 to book your free initial review and consultation.


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