How to Pass on Your Wealth to Others

Ways of giving the next generation a helping hand have improved with recent changes and new opportunities for people to protect their wealth from inheritance tax.

The tax is charged at a flat rate of 40 per cent and is payable on any assets worth more than an individual’s allowance.

At present, everyone has a personal allowance of £325,000. However, married couples can combine their allowances so that when the first spouse dies, his or her inheritance tax allowance passes to the surviving spouse. This means that when the second spouse dies, they would have the combined allowance of £650,000.

On top of this a new family housing allowance of £100,000 in addition to the £325,000 personal allowance will come into force in 2017, which means that in total families will be able to pass on an estate including a family home worth up to £1 million. The family housing allowance will rise to £175,000 by April 2020.

Owen Kyffin tax expert and director at Whitley Stimpson, the largest independent accountancy and business advisers in the area, said: “The family home allowance has made it easier for people to pass on their wealth to the next generation.  Because of the dramatic rise in house prices it is now more common for families to have a combined wealth in excess of £1 million.

“The family home allowance will only apply when the home is passed on to a direct descendant, which means a child or grandchild, including adopted and foster children. It will also be gradually removed on estates worth more than £2 million at a rate of £1 for every £2 above the threshold.

“However, there are other ways of mitigating tax and those who are planning ahead would be well advised to seek professional advice.”

There are several established ways to mitigate inheritance tax bills, including the use of trusts, an option to gift assets tax-free during one’s lifetime, taking out a whole-of-life insurance policy and giving money to charity.

There are also new ways to mitigate inheritance tax such as investing through the Enterprise Investment Service, which encourages investment of up to £1 million each year in private companies, which tend to be smaller and higher-risk. 

Owen said: “The benefits could be worthwhile but this could be a riskier option and needs precise management and takes two or three years to qualify for relief.”

Owen Kyffin can be contacted on 01295 270200 or by email at owenk@whitleystimpson.co.uk