Inheritance Tax is a tax which may be required to be paid on the value of an estate above a certain threshold. This is £325,000 – although it may differ in some circumstances. The standard Inheritance Tax rate is 40 per cent. If everything above the threshold is left to a spouse, civil partner, a charity or a community amateur sports club, then there is normally no Inheritance Tax to pay.
During this week’s Financial Planning Week, Michael Martin, Private Client Manager at 7IM, has shared some tips on how to tackle one’s finances.
He said: “Mapping out our finances for the future is never top of anyone’s to-do list, but it can make a real difference to peoples’ lives.
“The great news is, it doesn’t have to be an onerous task. We can all take some simple steps to improve our personal finances.”
For Mr Martin, this includes planning what will happen to one’s estate after their death.
“Rising house prices have pushed more people than ever before into the dreaded inheritance tax net,” he said. “Recent figures show that over £5.4 billion was paid to the Treasury in inheritance tax in the 2018/2019 tax year.
“Nobody wants to leave their loved ones with a huge bill but by having a clear plan in place you can reduce the impact of this hefty 40 per cent tax.”
He continued: “Giving money away at least seven years before you die is one way, and there are various types of trusts that you could set up for future generations.
“It’s also important to think about your will. Whilst clearly not the most cheery of subjects, making sure your will is done by a qualified adviser or solicitor, and is up to date will ensure that everything will be quicker and easier to sort out after you’ve gone.”
Another suggestion from the private client manager was to seek professional advice when it comes to big financial moves.
He said: “Whether it’s covering education costs or taking that first step onto the eye-wateringly expensive housing ladder, speaking to a professional can help you prepare for those big moments that matter.
“Of course, deciding when and if to take financial advice can be difficult but there are some key moments in life when doing so really makes sense; such as getting married or entering a civil partnership, receiving a windfall of money such as inheritance, or when it comes to your retirement.
“Throughout all these moments a professional financial planner is well equipped to analyse your situation, help plan your approach, and advise what’s best for you and your family.”
Mr Martin also spoke about why he thought it was important to stay flexible amid planning one’s finances.
He commented: “While having a clear financial plan in place is the best way to arm yourself to secure a robust financial future, it’s also important that those financial plans are flexible and that you don’t leave yourself dependent on one outcome.
“Diversifying your risk, be that tax or investment, and having a mix of both short and long-term savings should allow you to weather any storms and keep your financial plans on track.
“Having the proper advice to implement this flexibility to cover unforeseen costs or market downturns can still allow you to protect your finances and achieve the lifestyle you want.”