‘Makes an enormous difference to their lives’ How you could legally avoid Inheritance Tax

Inheritance: Expert gives advice on 'good planning'

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Inheritance tax came into focus recently as Daniel Craig shared he would not be leaving his fortune to his children. While this may be viewed as the exception to the rule by some, new research on inheritance plans shows many are in agreement with the James Bond star.

Recently, Hargreaves Lansdown (HL) surveyed 2,000 people on the topic of inheritances and estate planning.

The results showed:

  • Only 82 percent of people plan to leave money to their children when they pass away.
  • Seven percent plan to leave it to other family members, which includes guardians for youngsters, and those leaving it to grandchildren instead.
  • One in 20 will leave it to charity, and another one in 20 want to spend it while they can.
  • Of those who choose not to leave most of their money to their offspring, the most common reasons are wanting to spend the money themselves and wanting them to make their own way in the world.

Sarah Coles, a personal finance analyst at HL, commented: “It’s not just Daniel Craig: Almost one in five people don’t plan to leave most of their money to their kids when they pass away. Some have made sensible planning decisions for the benefit of their whole family, while others simply want to enjoy the money while they’re still here. However, there’s a risk some parents are cutting their children off to solve problems that can be cured in far more effective ways.

“Leaving an inheritance to your kids hasn’t died off entirely. The vast majority of people want their children to benefit from the money they’ve managed to save during their lifetime, and even among those who are leaving money elsewhere, plenty of them are doing so in order to benefit their family in another way.

“Some seven percent say they’ll leave their money to friends and family, but not to their children. This is higher among younger people, aged 18-34, who are likely to have young families, so they may be leaving money to whoever is going to be looking after their kids.

“Others are leaving money direct to grandchildren, to help them make a start in adult life and avoid the risk of the money being subject to inheritance tax twice. Some respondents pointed out that their offspring didn’t need their money, and that they were already better off than their parents.

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“Among those who don’t plan to leave anything to their children, a common theme was that they didn’t want to stand in the way of them making their own way in life, along with concerns about what they might do with the money, and the idea that somehow it would make their offspring hope for their death.”

Ms Coles continued by reiterating how crucial inheritances can be for future generations and guidance was issued on how money can be passed down effectively.

“But leaving money to your kids can make an enormous difference to their finances for the rest of their lives, and there are other ways of tackling these concerns,” she said.

“You can avoid your children counting the days until your death by considering making gifts during your lifetime. This means they can have a legacy when it makes the most difference.

“It also means you get to see them make the most of the gift, and there can be tax benefits too.

“You can give gifts of up to £3,000 a year which leave your estate immediately for inheritance tax purposes, or you can give gifts of any size, and as long as you live for seven years after handing the money over, it isn’t counted within inheritance tax calculations either.

“If they’re young, and you’re worried about what they would do with the money, there are options. If they’re under the age of 18, you could consider putting money into their Junior ISA, or a bare trust.

“In both cases they allow you to leave the money immediately, but they won’t get their hands on the cash until they hit the age of 18, at which time it offers them a valuable head start in adult life.”

Ms Coles concluded: “It can feel difficult to imagine our children making sensible and informed decisions about what to do with a legacy. However, when you pass away, as soon as they are 18, they’ll be making their own decisions anyway.

“You have to consider whether you’d like them to have the opportunities that having a nest egg offers them, or whether you’d like them to be making their mistakes without any financial security behind them.

“If the children are older, and you’re worried about the effect the money will have on them, you can keep an element of control by leaving the money in trust. There are cost implications with any trust, but you may decide it’s worth the expense in order to leave them a legacy in a way that suits you.

“Unfortunately, in some cases, the decision not to leave money to children may be down to the personalities involved, with one in five saying they simply didn’t want their kids to benefit from their death.”

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