A problem shared is a problem halved

Martin Banerjee

Chartered Financial Planner

The financial needs of each family member may be very different. However, by planning and open discussion, we see that many families can provide valuable financial support to other family members which can also benefit their own financial planning.

Older relatives may need financial support for long term care needs, whilst the younger generation may need help to protect their families or with education costs for their children.

It’s good to talk
Family discussions help to include family members in a coordinated financial plan, although each individual may have their own financial goals. We see the problems caused by not having family discussions, leading to financial struggles or additional stress when dealing with a family illness, disability or death. Even details such as funeral arrangements and how wealth should be passed to the next generation can become very difficult if intentions are unknown.

We recognise that these conversations can be difficult, but as financial advisers, we can help to bridge these gaps and start up these important conversations. It really helps to give everyone clear expectations and understanding of the financial challenges and opportunities.

Have you made sure your passing on your wealth to your family tax efficiently?
Inheritance Tax is payable on death on assets over the nil rate band.

For the current 2020/2021 tax year, the total IHT allowances are:

Nil Rate Band
Residence Nil Rate Band

The additional residence nil rate band of £175,000 is only available if a main residence is passed to a direct descendant, giving an individual tax free allowance of up to £500,000.

Assets passed on death to a spouse or civil partner are not subject to Inheritance Tax. In these circumstances the first Nil Rate Band could potentially go unused and any unused allowance can be transferred to the surviving spouse or civil partner and added to their own allowances. Therefore on second death, a combined allowance of up to £1,000,000 may be available (based on the current allowances).

More estates are exceeding these limits as residential property values have increased over recent decades with the average UK house price increasing by over £60,000 since April 2010, an increase of 36%, but the Inheritance Tax threshold has not been increased since 2010.

The value of the estate over the nil rate band is subject to 40% tax – so it is worth seeing how you can pass your wealth on tax efficiently. In 2019/20 HM Revenue & Customs (HMRC) collected £5.2 billion from IHT receipts. This is a 4% drop, worth £223 million, from the previous tax year which suggests that financial planning can help to reduce or eliminate this tax bill.    

How can you support your family today?
If you have children who are just starting a family, they may be anxious about childcare costs or planning for the costs of their children’s education. If your total assets might exceed your Inheritance Tax limit when you die, you could make gifts within the annual exemption limits by, investing into a Junior ISA or ISA which are tax free.  This will help your children and also helps to reduce the value of your estate meaning that more of your estate can be passed in your lifetime to people you want and will not be subject to Inheritance Tax when you die.

You can also consider making financial gifts as contributions to pension arrangements for your spouse, children or grandchildren, which will benefit from tax relief and will provide them with benefits at retirement.

Getting children on the property ladder
In July, the Chancellor raised the starting point for stamp duty land tax (SDLT) in England and Northern Ireland from £125,000 to £500,000 until 31 March 2021. The Scottish Government made a change to the nil rate band of its Land and Buildings Transaction Tax (LBTT), increasing it from £145,000 to £250,000. Wales adopted a slightly different tack, raising the nil rate band on land transaction tax (LTT) from £180,000 to £250,000, but only for main home purchases.

These temporary changes can make supporting children with buying a home more appealing, as the financial gift you make is less likely to be used to meet stamp duty or tax, meaning that in effect your gift is going further now than it did before these changes were announced. 

Your choices today can affect the family’s needs tomorrow
Whatever options you consider, having finance on the agenda in family discussions is healthy. The benefits of closer financial engagement are significant for the financial wellbeing of each family member. These conversations can be hard to start but our advisers can help you with these discussions and then provide advice recommendations to suit the family financial needs.

The value of your investment can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance. 

The value of tax reliefs depends on your individual circumstances. Tax laws can change.

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