Long-Term Goals That Extend Past Your Life



Posted on: 3rd July 2023

People may think that paying into the investment game benefits them simply whilst they are alive. An alarming number of investors fail to consider their wealth builds when addressing their passing.

All investments begin with a long-term goal – building wealth over the years. An example of this comes in pensions, where an investor would build a pension pot to fund their retirement. You also need to consider your investments’ continuing growth beyond retirement, which is why we like to talk with our clients about estate consideration and inheritance tax.

Wait? What? Inheritance Tax??

You will be familiar with the old saying of there being two certainties in life – death and taxes. What you may not know is that Inheritance Tax (IHT) is paid to HMRC when you die, depending on the value of your estate upon your death.

Your estate is an all-in term relating to the total value of all assets. That includes such things as your property, savings and investments. It is good to know that IHT is only payable on your estate if it exceeds a certain threshold. For the 2022/23 tax year, that threshold is £325,000.

The standard IHT rate is 40%, only chargeable on parts of the estate that exceed that threshold. For example, if your property is worth £500,000 and your tax-free threshold is £325,000, your 40% IHT charge would be on the £175,000. That means your tax bill would be £70,000.

That is quite a costly sum to deduct from your family’s rightful inheritance – but there are ways to potentially reduce this figure and leave more of it to your loved ones. It just takes some planning ahead with independent financial advisers Manchester.

Let’s Get Efficient

Okay, now you know what you will face, let’s look at how to become more efficient against it. We will state that every client has different stances and financial stakes, so we deem it necessary to talk with the best independent financial advisers UK before diving in.

Under current tax rules, most individuals have an Inheritance Nil Rate Band and a further allowance that can offset against the main residence – known as the Residence Nil Rate Band.

That allowance reduces your IHT when passing on a qualifying residence to a direct descendant. The current Residence Nil Rate Band is £175,000 and is an addition to the Nil Rate Band. on top of that option, you can potentially reduce your IHT bill and pass on your estate to beneficiaries over several other avenues.

Investing in a pension is a great way to be efficient over IHT as it is not usually part of your taxable estate. Depending on your tax circumstances, it would be of greater interest to keep money invested in your pension as long as possible and pass it to a beneficiary following your passing.

Another avenue would be leaving 10% of your estate to a charity, which goes a certain way of alleviating your family’s rate of tax.

The best way to avoid hefty rates of inheritance tax is to be educated, which is why you need to consult with independent financial advisers Cheshire whilst you can fully benefit. Contact the team at Haven IFA today to take the steps necessary to reduce your Inheritance Tax bills.