Britons are increasingly worried that Labour will withdraw generous allowances that mean they can give away their wealth rather than be hit by inheritance tax.
The number of people making a web search around “inheritance gift tax” has surged by 38 percent in the past month alone.
It appears that a significant number of wealthy Brits are looking to give away large sums to family before a Labour government can push through any changes in the law.
Research by the private bank Arbuthnot Latham’s found 45 percent of the UK’s wealthiest individuals are worried about the financial stability of the next generation.
The company said online demand for inheritance tax reduction strategies has surged by 13 percent, yet it said only 26 percent of the wealthiest are adequately prepared.
Concerns over inheritance tax have led to over half of the UK’s wealthy including their children in financial planning discussions.
Rachel Wyatt, Wealth Planner, Arbuthnot Latham, said: “Many people feel uncomfortable talking in any detail about inheritance and too often it’s not discussed. The danger with this approach is no-one achieves their desired outcomes.
“An estate plan gives you the tools to have a proper conversation, removing uncertainty and empowering your beneficiaries to plan efficiently themselves.”
The bank’s experts have highlighted key steps to communicate with the next generation about inheritance and how to protect their financial stability.
Lifetime gifting
Some gifts can be made each tax year, and immediately fall outside your estate for IHT purposes, provided they qualify and are made outright.
These include an annual gifting allowance of £3,000, gifts of up to £5,000 from a parent to a child upon marriage or civil partnership, and regular gifts from excess income. You can also give as many gifts of up to £250 per person as you want each tax year, as long as you have not used another allowance on the same person.
Gifts in excess of these allowances will only be tax-free if you live for seven years after making the gift.
Trusts
Trusts can be a powerful tool for giving gifts to your chosen beneficiaries. By appointing yourself as a trustee and writing a letter of wishes, you can maintain control or influence over the distribution of income and capital.
Certain trusts offer an excellent way to reduce the amount of taxes loved ones pay when receiving an inheritance as well as providing safeguards on how your beneficiaries can access your gift. A wealth planner can guide you through the intricacies of trusts and help you navigate this practical wealth management approach.
Pensions
Pensions are an important wealth planning tool as they are outside of your estate for inheritance tax purposes. They are also one of the most efficient investment vehicles.
There are, however, many elements to consider from risk appetite to when and how you might want to access your these funds. There is no ‘one-size-fits-all’ approach, and professional financial advice is key to ensure your estate planning strategy is designed to meet your future financial and lifestyle goals.
Protection
Ensuring the financial wellbeing of your family members during emotionally challenging times is paramount to many individuals. Estates can be illiquid and protection can provide a cash injection to cover some, or all, of the IHT bill, or any other associated costs with death.
It is important to review your cash flow forecast to assess how much money you might need to maintain your lifestyle, consider future long-term care needs, and how you might use any surplus efficiently.
Business relief
Business relief presents an opportunity to incorporate tax-efficient planning into your overall strategy. This relief applies to assets that meet specific conditions and can be valuable to your wealth management plan. Bringing in specialist wealth planning expertise can assist you in leveraging this relief effectively.
Putting in place strategies to reduce inheritance tax now will ensure the wealth of future generations. However, to enable them to maintain this wealth long-term it’s important that families discuss the transfer of wealth and ensure the next generation has expert guidance sooner rather than later.
Key conversation topics for parents to discuss with children and grandchildren Values and Responsibilities
Discuss family values, responsible wealth management, and the importance of giving back to the community.
Financial Education: Provide financial education, including budgeting, saving, investing, and long-term financial planning.
Estate Planning: Explain the basics of your estate planning strategy, including wills, trusts, and your wishes for asset distribution.
Inheritance Expectations: Be transparent about what children and grandchildren can expect in terms of inheritance, managing their expectations while encouraging open communication.
