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In the long-term, they will receive more of their inheritance if you gift it gradually. Otherwise, HMRC is duty-bound to collect a large part of it—more substantial, perhaps, than your estimates [1].

Does everyone need to pay inheritance tax?

Inheritance tax is only charged on the part of an estate that is above the threshold. This payment is at 40 per cent of the amount in excess, but you could minimise it if your estate fulfils certain conditions.

You do not need to pay this tax if your estate falls within the threshold of £325,000. If you leave all of your properties to charity, a civil partner, your spouse, or a community sports club, you are similarly exempt.

Giving away your home to children or grandchildren will cause your threshold to increase to £450,000. Married people or those in a civil partnership whose estate is worth less than the maximum could add any unused threshold to their partner's, raising it to as much as £850,000. 

Taking care of your own needs

Wealth management is all about priorities. Before thinking of others, you must also consider your own needs. For instance, nursing care costs can add up, and they vary according to location. Care costs about £39,300 per year, of which a third is for nursing home expenses[2].

The cost of living also matters. In the latest report from the Office for National Statistics, it says that on average, a UK home spends £585.60 every week[3]. Net housing expenditure, fuel, and power all increased from the previous year. Year-on-year comparisons also show that households are spending more on goods and services today than ten years ago.

A generation set to inherit instead of earn

These are all factors that affect generational income growth. In the UK, income growth has stopped, a 180-degree change from trends that have been in effect since World War II. It means that retired persons today are richer than those who are still in the workforce, who may never reach the levels of financial security their parents and grandparents have attained.

This leads some people to the conclusion that they must help out their children and grandchildren while they are alive. If it will not jeopardise the person's standard of living, this is certainly a viable way to share the family's wealth.

There is no template to inheritance planning. People who can afford it should take into consideration their needs as well as their children's and grandchildren's. It is not an either-or situation; there should be enough to help everyone reasonably.

Conclusion

Mindful spending ensures that your child gets the inheritance that they deserve. Instead of leaving your money in a will, you could speak with a portfolio management expert to explore your options and identify the best way for you to give your resources to your descendants.

Make sure your money is going to your loved ones by reaching out to Harry Robinson Wealth Management today. Our retirement planning experts in Cardiff specialise in pension planning, estate planning, financial protection, and more. Get in touch with us and let us start planning for a brighter future today.

References

1. GOV.UK. https://www.gov.uk/inheritance-tax. Accessed on 3 September 2020.

2. The Money Advice Service. http://moneyadviceservice.org.uk/en/articles/care-home-or-home-care. Accessed on 3 September 2020

3. The Office for National Statistics. https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/expenditure/bulletins/familyspendingintheuk. Accessed on 3 September 2020.

*Will writing and Powers of Attorney involve the referral to a service that is separate and distinct to those offered by St. James's Place and along with Trusts are not regulated by the Financial Conduct Authority.