How to Leave the Maximum Amount to Your Children

Inheritance is an important part of the financial planning process for any parent.

In the ramp-up to the General Election, the Conservative Party have been in the news because of their proposal to fund social care with a tax on private assets over the value of £100,000. 

The policy is now under review after a certain level of scrutiny, not least because of the impact this would have on a person’s Inheritance Tax (IHT) plans.

Working with a financial planner will help you to leave the maximum amount to your loved ones.

Put your assets in a Trust

If you put some of your money, property or other investments into a Trust, it will no longer be classed as part of your estate for IHT purposes – if your spouse or children under 18 years are unable to benefit from it.

One example might be that you establish a Trust fund to help your adult children to pay for your grandchildren’s education.

Trusts are a complicated area of personal finance, however, so you should seek financial advice when you are looking to establish yours. One complication, for example, is that all Trustees pay Income Tax at a rate of 45%, and Capital Gains Tax at 28%.

Give money to your family, but not your spouse

If you give some money to one of your children and you live for a further seven years, it won’t be accounted for when IHT is calculated. There is a cap on how much you can give each year without having to pay IHT (£3,000 per year), but limited amounts are permissible.

Please note that there could be additional Capital Gains Tax charges on certain assets that you wish to gift during your lifetime.

Cover loss with a life insurance policy    

If you take out a life insurance policy, the pay-out could help your loved ones pay the bill. The policy won’t reduce the amount of IHT due on your estate, and you need to ensure that you put the policy into a trust. If you don’t, it will increase the value of your estate and you will need to pay more tax.

Leave money to charity

Of course, leaving money to a charity is morally enriching, but it might also add value to your family, too. If you leave at least 10% of your estate to charity it will cut how much IHT you pay on the rest.

If you pursue this option, your IHT rate will be recalculated to 36% rather than 40%. While this saving is not massive, it could mean that your loved ones receive more than they would otherwise, and your chosen charity will also benefit.

This rate is set against the balance of the estate to the extent that it exceeds the available nil-rate band.

Whichever strategies you wish to pursue, gpfm financial planners can help you achieve your inheritance targets, giving you total peace of mind about your children’s future. Contact our Chartered Financial Planners on 01992 500261 or on enquiries@gpfm.co.uk.

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.