Legacy planning

How much will you give away this Christmas?

14 December 2021

3 minute read

Legacy planning – find out how to transfer wealth to make sure your loved ones are secure. Understand how to plan and how we can assist you.

Intergenerational wealth transfer, legacy planning and Inheritance Tax (IHT) planning can often be difficult topics to talk about. Whilst most people want to transfer more of their assets to loved ones during their lifetime, many find discussing these matters with their families challenging, or often leave this too late.

By having open and honest conversations with your family members, they can start to be included in planning discussions. This ensures that they understand important considerations such as making sure that 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, reducing the overall value of your estate, and thereby mitigating your potential inheritance tax planning.

Inheritance Tax planning

When family members are able to join planning meetings, often they will have questions about the options available for inheritance tax planning, as ultimately they might benefit from an inheritance, whilst reducing the inheritance tax bill that must be paid.

Everyone has a standard IHT allowance of £325,000 per person, otherwise known as the Nil Rate Band (NRB). For people with children or direct descendants who can inherit the family home, this could increase to £175,000 per person following the introduction of the Residence Nil Rate Band (RNRB) since 2017. Therefore, for a married couple or civil partners the first £1,000,000 of their estate could potentially be free of IHT. However, for estates over £2,000,000, this additional RNRB is reduced by £1 for every £2. Once the total estate is above £2,700,000, the additional RNRB is lost.

For example, a married couple has a £2,700,000 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, if they felt that it was affordable to do so they could gift £700,000 to their beneficiaries immediately reducing the estate value to £2,000,000 (albeit the gift remains chargeable to IHT for seven years). With the estate immediately reduced to £2,000,000 the full RNRB reclaim of £175,000 per person is potentially available, representing a saving of £140,000 of IHT, plus £280,000 IHT liability saved on the gift after they have survived for seven years of having made it.

Intergenerational wealth transfer

The key is to start intergenerational planning as early as possible, as there can be more planning options available. As an example, for gifts to beneficiaries or trusts, the likelihood of surviving seven years is greater, and if using Discretionary Gift Trusts, this could be done every seven years as the NRB is reinstated.

For life assurance considerations, the cost of premiums is typically lower when people are fit and healthy, and tend to increase substantially over time. It is also possible to invest in certain high risk investments and save IHT after a two year qualifying period, which can help older people to save IHT successfully.

Wealth planning can help clients and their families identify the potential inheritance tax on their estate, and explore a number of 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.

So, what will you be talking about with your family this Christmas?

Next steps

If you would like to arrange a meeting with a Wealth Planner to discuss your options, please speak to your Wealth Manager.

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.

This article does not constitute personal financial, tax or legal advice. Any tax calculations have been supplied for illustrative purposes only – Barclays does not provide tax advice and therefore clients should speak to their own tax adviser if unsure.

Each person’s circumstances are different so if you are unsure about investing, you should seek advice from a regulated adviser.

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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