Create and protect your legacy
A specialist service from Sovereign Wealth – Rob Sutherland
Although you may have firm ideas about who will benefit from your wealth in the event of your death, making sure your intentions are carried out smoothly can be complex.
All kinds of events can end up knocking your plans off course, and it takes expert advice to make sure your wealth is protected for future generations.
Our team guides you through the process of planning the legacy you will one day leave behind. We consider the effects of inheritance tax and the possibility of unexpected events, making sure your wealth is retained and protected for those you love.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
HM Revenue & Customs are Forecasted to collect £7.5bn* in IHT revenues in 2024/25 alone.
At Sovereign Wealth, we specialise in Inheritance Tax (IHT) and Estate Planning.
Estate Planning is not just the concern of the ‘Landed Gentry’. IHT receipts have increased as a share of GDP since 2009-10, mainly due to rises in asset prices. Residential property makes up the largest share of most estates and the average have risen considerably since then. The rise also reflects a significant fiscal drag as the IHT threshold has remained at £325,000* since 2009. Some people may also be entitled to up to £175K as a residential nil rate band, if they pass their residential home onto their direct descendants.
When you die, ensure you don’t make HMRC the largest beneficiary of your estate! Careful and timely advice can avoid tax bills of up to 40% on assets over the threshold of your estate.
* Inheritance Tax, Office for Budget Responsibility thresholds, rules and allowances, Gov.uk, March 2024
Working for you
How Can We help Mitigate IHT?
There’s usually no Inheritance Tax to pay on small gifts you make out of your normal income, such as Christmas or birthday presents. These are known as ‘exempted gifts’.
There’s also no Inheritance Tax to pay on gifts between spouses or civil partners. You can give them as much as you like during your lifetime, as long as they live in the UK permanently.
*You can give away £3,000 worth of gifts each tax year (6 April to 5 April) without them being added to the value of your estate. This is known as your ‘annual exemption’.
You can carry any unused annual exemption forward to the next year – but only for one year.
Each tax year, you can also give away:
- *Wedding or civil ceremony gifts of up to £1,000 per person (£2,500 for a grandchild or great-grandchild, £5,000 for a child)
- Normal gifts out of your income, for example Christmas or birthday presents – you must be able to maintain your standard of living after making the gift
- Payments to help with another person’s living costs, such as an elderly relative or a child under 18
- Gifts to charities and political parties
- The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
- * How Inheritance Tax works: thresholds, rules and allowances, Gov.uk, February 2024
Although pension death benefits are traditionally exempt from IHT (assuming the scheme is written under discretionary trust), if they are passed to your survivor they could form part of their estate.
There are options we can explore together which allow your survivor access to your death benefits without them forming part of their own estate.
Trusts are an often overlooked way to manage your estate when you pass away, keeping an element of control over what happens to your assets and how they can be used. The tax treatment of trusts can also mean they’re useful for reducing the amount of inheritance tax that will be paid. However, the rules around inheritance tax and trusts are complicated but we can comprehensively guide you through these issues.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
Certain assets receive relief from Inheritance Tax (IHT). This means there has been a transfer of something of value, but tax is not due on the full value. You normally need to claim for this and it must meet a number of conditions.
- Business
*Depending on how you own the business and what type of business it is, you can get either 50% or 100% tax relief on some of an estate’s business assets. These could have been passed on while the owner was alive or as part of the will, but must have been owned for at least two years before they died. - Agricultural property You can pass on a farm free from Inheritance Tax, as long as it meets certain conditions. But certain farm assets aren’t exempt from tax, such as farm machinery.
- Woodland property You can get relief for growing timber, but it only applies to the timber, not on the land itself. It is applied on death and defers the tax due until the timber has been sold. However, woodlands used for commercial purposes could get up to 100% business relief, which is preferable to deferment. In theory, Inheritance Tax can be postponed until the trees are cut and sold, provided the woodland has been owned for five years.
- * Business Relief for Inheritance Tax, Gov.uk, February 2024
- *Agricultural Relief for IHT, Gov.uk, February 2024
- *Woodland owners, tax guidance, Gov.uk, February 2024
As we all live longer and medical science improves the chances of us ending up in a care home becomes more realistic.
According to Age UK the average cost of a care home in the UK is £800* per week.
This could very quickly deplete all funds that you were hoping to pass on to loved ones.
The future is uncertain, especially when it comes to later stages of life. However, having a solid financial plan brings a sense of assurance and confidence in providing for your loved ones.
The chances are, you would prefer your wealth to benefit those you care about rather than contributing to HM Revenue & Customs. Additionally, ensuring that you have sufficient resources to cover potential care costs is likely a priority. If managing finances in your later years feels like a balancing act, we are here to assist you.
No matter your age or circumstances we will do all we can to help.
*Age UK, June 2024.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
What is Inheritance Tax (IHT)?
IHT is effectively a tax on your wealth and is payable to His Majesty’s Revenue & Customs (HMRC) on money or possessions you leave behind when you die.
If you plan to pass on assets or money after you die, your heirs could face a tax bill of up to 40% of your estate. Your estate is defined as your property, savings and other assets after any debts and funeral expenses have been deducted. You can reduce or avoid IHT in a number of ways. There's a tax-free allowance, and you can also give away a certain amount of your money during your lifetime, tax-free and without it counting towards your estate.Everyone in the 2024-25 tax year has a tax-free inheritance tax allowance of £325,000 – known as the nil-rate band. The allowance has remained the same since 2009. The standard inheritance tax rate is 40% of anything in your estate over the £325,000 threshold. There is currently a further Residential nil rate band of up to £175,000.
For example, if you leave behind an estate worth £500,000, which does not include property, the tax bill will be £70,000 (40% on £175,000 – the difference between £500,000 and £325,000). If you want to calculate your potential IHT bill contact us for a No-obligation assessment. The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on the individual circumstances.
*How Inheritance Tax works: thresholds, rules and allowances, Gov.uk, February 2024
Are you worried about Inheritance Tax?
Contact Rob Sutherland, Sovereign Wealth, today on 0116 2220372 for a no-obligation initial consultation and get an inheritance plan tailor-made for you.
Rob Sutherland is an Advisor of Sovereign Wealth Ltd.
