The importance of estate planning – and making a Will

Don’t underestimate the importance of estate planning – and making a Will

The idea of having to pay inheritance tax (IHT) is unpopular to say the least. This tax is charged on an estate, which is the property, money and possessions left behind to loved ones who will pay 40% anything above the threshold.

HM Revenue & Customs (HMRC) recently released figures which showed families paid £5.4billion in IHT bills during the 2020 to 2021 tax year – an increase of £190million on the 2019 to 2020 tax year. You can leave up to the £325,000 threshold – £650,000 if you’re married or in a civil partnership – before loved ones face a tax bill.

However, the Chancellor, Rishi Sunak, announced in the Budget in March that the threshold would stay frozen for five years to help “strengthen” the public finances. It has already been at this level since 2009.

If you plan to leave your house as part of your estate to your children or grandchildren, your threshold could increase to £500,000 per person.

It may seem like a high threshold to reach, but rising house prices over the past few decades have brought more people into the IHT net.

“A study revealed that 78% of people have no estate planning strategy in place”

The good news is that there are plenty of measures individuals can take to reduce the amount that HMRC can claim when it eventually comes to assessing IHT. The bad news is that the majority of people are failing to take advantage of such measures.

A study revealed that 78% of people have no estate planning strategy in place, while 66% rarely or never discuss inheritance with their children. The Family and Finances report[1], by Schroders Personal Wealth, shows that most over 60s plan to pass on their wealth to their children after death (72%), with just 13% saying they would do so during their lifetime.

So what are these measures?

One simple way to minimise paying IHT is to shrink the value of your estate while you’re still around. Giving away assets during your lifetime not only reduces your estate for inheritance tax purposes, it provides a much-needed boost to grown-up children moving up the property ladder or even to grandchildren saving for their first home.

The ‘annual exemption’ allows individuals to give financial gifts, tax-free, to the value of £3,000.  You could decide to pay the £3,000 into a Junior ISA for grandchildren each year, from birth if you wish. This money could go a long way to helping the mounting challenge young people face paying for tuition fees or getting on to the housing ladder.

You can even carry over an annual exemption from the previous tax year into the next tax year. You can also give £250 to any number of people every year, but you can’t combine it with your annual £3,000 exemption.


You can also give away all types of assets, including cash, property and shares tax-free, as long as you live for seven years after making the gift. Known as a “Potentially Exempt Transfer”, it must be an outright gift from which you can no longer benefit.

There is a way of giving away unlimited cash without using the seven-year rule – as long as it’s from surplus income and doesn’t reduce your standard of living or force you to dip into your capital to cover day-to-day costs.

You might also consider setting up a trust. There are a number of trusts that mitigate inheritance tax. They are useful for setting aside a sum of money to be used at a later stage, perhaps where grandchildren are still young. Specialist advice is crucial to ensure the right trust is chosen for your particular needs and goals.

Making a Will is another vital part of estate planning. It ensures your financial plans are signed and sealed. Updating your Will is just as important as making one, as circumstances change as life goes on. You can include a Will trust which allows you to make provisos on any assets left to heirs.

There are lots of other measures to consider including leaving your pension untouched to be passed on tax-free.

Gifting substantial sums of capital may not be suitable, for all, particularly there is uncertainty about how much income or capital they be needed in their lifetime.

A financial adviser can help with this and all things surrounding estate planning, as well as making a Will.

Working with an adviser you can out in place everything you need to bring peace of mind that things are in place to ensure as much of your hard-earned wealth goes to loved ones, rather than to HM Revenue & Customs.

You’re never too young to start planning for the future – and that of your loved ones.

Source: [1] https://www.spw.com/campaign/family-and-finances

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