The power of inheritance planning

Christopher Melville M.Sc. Melville Financial Management Ltd  

Inheritance Tax (IHT) is more often in the minds of those in later life than those in their youth.  

Quite simply, IHT is not something you think about too often, but it is worth considering as property prices and asset values rise. More families are facing the potential of a 40-percent tax bill on estates, making the power of family planning an important consideration more than ever before. 

The potential for an IHT bill occurs after death and the tax due to HMRC thereafter. All assets and valuables owned at the time of death are valued, and any gifts made seven-years previously, are placed in an estate, along with any debt owed. The tax liability is calculated on estate’s valued above £325,000 (2021/22).  

In addition, there are exemptions and transfer rules around private residency, charitable donations and giving-away assets to family that may increase the IHT tax-free threshold and lower the potential IHT liability. This is when the Power of Family Planning comes into play.  

To save the family from turmoil and upheaval following a loved one’s death, matters such as Will planning, final wishes, and the distribution of savings, investments, cars, property etc are best agreed in advance. Family Planning would be best considered immediately following the purchase of an asset or the introduction of a new family member. A family agreement considered many years before death saves families and preserves family wealth. 

In some family situations, when a substantial IHT bill is calculated, because of prudent family planning, equity release may assist in lowering the tax liability while proving additional income or funds for you or the family to use. The result of mortgage debt in later life lowers the estate value for IHT purposes, reducing the potential tax liability the family will incur. 

An equity release mortgage is available for those over the age of fifty-five and secured against your main home. Equity release, known also as later life lending or lifetime mortgages, usually comes with a fixed for life interest rate, providing certainty of the monthly interest payments. Some products allow the interest-only part to be paid monthly while other products add the interest-only cost to the mortgage balance, doing this the interest-only part calculated every month is added to the mortgage balance, as a result the mortgage balance increases every month.  

It is important to note, that considering an equity release product as part of your family planning matters should not be considered lightly. Speaking with a qualified Equity Release Council member financial adviser and a family estate planner would be steps-in-the-right-direction. 

The views of contributors are not necessarily shared by the Council 

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