By Dominic McLoughney, Director
With the festive period approaching, our thoughts turn toward gifts for our nearest and dearest, but generosity should not be reserved just for December. Indeed, gifting should be for life, not just for Christmas!
A great man once opined:
“Happiness is not so much in having as sharing. We make a living by what we get, but we make a life by what we give.”
Air Vice Marshal Sir Norman Duckworth Kerr MacEwen
We tend to find that financial planning takes a back seat during late December and returns to the main stage in January, as New Year cheer and optimism translate into contemplation for the future (or, more likely, returning to work after a nice Christmas break brings forward a desire for early retirement!)
For those looking to minimise the impact of Inheritance Tax (IHT) on the passing of wealth to the next generation, gifting and generosity can play a key part in the financial planning strategy.
A Treasury-commissioned review of IHT found that those not receiving advice and not having a plan in place, tended to pay an effective IHT rate of 20%. Whereas, those under advice and with a plan, would have an effective rate of just 10%.
Part of our role is to ensure that families are aware of the rules and available exemptions to them sooner, rather than later. A simple first step in this process can be to demystify the wealth taboo and to open communication between family members in respect of financial planning. This process doesn’t necessarily have to outline specific details and is usually designed to give an overview of the objective and planning options.
It is important to note that gifts made within seven years of death (together with any gifts made to trusts) may be added back to the donor’s estate and if in excess of the nil rate threshold will likely be subject to some form of IHT. In real life, this generally translates into a need to begin IHT planning earlier as opposed to delaying into later life.
Families all too often overlook the annual gifting limits, which are highlighted below:
The annual gift of £3,000 per annum can seem trivial, however, the accumulative effect of a couple’s gift (£6,000 per annum) over the medium to long term can be significant and is immediately outside of the estate.
Furthermore, the gifts from income allowance provides a potentially high level of exempt gifting as there is no monetary limit attached. The rules can take some consideration but in essence, so long as the gift does not affect the donor’s standard of living it will generally be considered exempt.
Whilst gifting can present a core strategy for IHT planning, it should not be considered in isolation. A combination of expenditure planning, whole of life cover and certain types of investment can also be employed to achieve the overall objective.
Call or email us today to arrange an initial review and discussion with one of our Chartered Financial Planners. Our initial “discovery” meetings come with absolutely no obligation and at no cost to you. Please do not hesitate to contact us on 01253 881910 or via firstname.lastname@example.org