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Legacy planning

How to plan and how we can help

25 March 2022

3 minute read

Legacy planning – how you can transfer wealth to make sure loved ones are looked after now and in the future.

Intergenerational wealth transfer, legacy planning and Inheritance Tax (IHT) planning are not usually top of the list when it comes to preferred topics of conversation.

In fact, many people find them rather difficult to talk about and end up addressing these matters too late.

However, estate planning as a whole is an extremely worthwhile topic, since getting the right plans in place means you and your family can keep more of the wealth you have worked hard for – instead of your wealth being eroded by inheritance tax.

By involving family in your planning discussions, they will better understand important decisions that need to be made.

This is particularly the case for making sure you have enough capital and income for your own lifetime, whilst making provision for children and grandchildren so that more assets can be passed on.

The benefit of passing on money while you’re still around is to reduce the overall value of your estate and the potential IHT liabilities.

Inheritance Tax planning

The standard IHT allowance allows each individual to pass on £325,000 without any tax being due – otherwise known as the Nil Rate Band (NRB). For those with children or direct descendants who can inherit the family home, this could increase by £175,000 per person following the introduction of the Residence Nil Rate Band (RNRB) in 2017.

That means that for a married couple or civil partners, the first £1 million of their estate could potentially be free of IHT. However, for estates over £2 million, this additional RNRB is reduced by £1 for every £2. Should the total estate exceed £2.7 million, the additional RNRB is lost entirely.

There is much to gain with the right kind of financial planning. Take for example, a married couple with a £2.7 million taxable estate. Assuming that they both have their full Nil Rate Bands available, £650,000 of their estate could be free of IHT. As their RNRB has reduced to £0, the potential IHT bill would be £820,000.

However, they could choose to gift £700,000 to their beneficiaries immediately reducing the estate value to £2 million - though the gift remains chargeable for IHT for seven years. This would immediately reduce the value of the estate to £2 million and so the full RNRB reclaim of £175,000 per person is potentially available.

This would produce a saving of £140,000 in IHT, plus £280,000 IHT liability saved on the gift after they have survived for seven years of having made it.

Intergenerational wealth transfer

Financial planning can be a family business by considering how to use wealth in the best and most tax-efficient way.

The emergence of the ‘Bank of Grandma and Grandad’ has helped fund childcare costs, school fees or university tuition fees for the next generation – for their grandchildren.

School and tuition fees in particular can be a huge financial strain on even high-earning parents, but grandparents can make a significant difference by helping to pay from assets which would have been left to their son or daughter later on anyway.

Passing down wealth through the generations can be very tax-efficient – and the earlier you start, the better.

For gifts to beneficiaries or trusts, the likelihood of surviving seven years is greater when you start earlier. Plus, if you’re using Discretionary Gift Trusts this could be done every seven years as the NRB is reinstated.

It is also possible to take advantage of tax perks that come with certain investments which become IHT-free after a two-year qualifying period. These can help older people to save IHT successfully, as long as they are comfortable taking higher levels of investment risk.

Wealth planning can help identify the potential IHT on an estate. It’s possible to explore other options that may include protecting the potential IHT on large gifts, a range of trusts, whole of life assurance, and investments that qualify for IHT relief.

Starting earlier can also help get better value life assurance policies since premiums are typically lower when people are fit and healthy and tend to increase substantially with age.

Next steps

Wealth Planner Tony Marsh offers insight how you can start building a legacy plan in this latest video.

Hello, my name is Tony Marsh. I'm a Barclays Wealth Planner. A legacy plan is your strategy to pass on your wealth to loved ones in a tax-efficient manner. The first port of call is to think about your circumstances, objectives, and priorities. You'll need to consider how much capital and income you have and how much you will need to meet your expenses in the future.

You should also consider whether your income is guaranteed and will rise with inflation or whether you will be dependent upon investment returns. You should also build a cash safety margin into your plan to offer peace of mind.

Once you have a good idea of how much surplus income and capital you have, you can start to think about passing assets or income onto the next generation. A Barclays Wealth Planner can help you create the right strategy for you and for your family.

Speak to your Wealth Manager or contact us if you would like to arrange a meeting with a Wealth Planner to discuss your options.

Your Wealth Planner can help you understand the effect of tax on your wealth and offer tax-efficient wrappers for your investments. They’ll be able to guide you towards making the right decision for your financial planning needs. Your planner can't offer tax advice – you should seek that independently. Please bear in mind that tax rules can change in future and their effects on you will depend on your individual circumstances.

Things to consider

The value of investments can fall as well as rise. You may get back less than what you originally invested.

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