OK, last week’s blog was horrible! #086

Let me paint a different picture…

I think I need to apologise to at least half of my readers for the tortuous nature of last week’s blog!

It was about the change to pension death benefits – arrrggghhhh don’t stop reading, please. It was something I needed to get off my chest, think through and share with the world. At least my financial planning community enjoyed it. Many an anorak was rustling over on Linked In, mine included.

But for you, mere mortal readers, it was torrid. Thanks to one of my favourite readers (you know who you are 😉) for sending me this message:

“Your 1000Weeks this week is too hard to understand…I think it means make sure you spend it all on things like nights out or experiences before you die!”

She had it in one! Almost.

So let me drop the jargon and unpack what I was saying.

In a nutshell

When you stop or reduce working, you will need some money. Whether that’s from a pension, ongoing work, property income, other form of investments, maybe your partner, trust fund or other wealthy benefactor.

The crux of the point I was making last week is this:

In this country, like it or not, we have a tax on death, Inheritance Tax (IHT). Broadly speaking, if you die with an estate worth over £325,000 and anyone other than your spouse or civil partner gets the dosh, the estate will have to pay 40% inheritance tax (IHT) before your beneficiaries get what’s left.

From next April, pensions will be included in that calculation having been outside of the IHT net for years. Boo hoo.

However, the thrust of my argument is this: pensions were designed to provide an income in retirement, not as a way of passing untaxed wealth down to your children, other family members or friends.

Rest assured on death you will still be able to pass pension money tax free to your spouse, civil partner or, should you choose, charity.

So, spouses and charity aside, what can you do to manage this change in rules?

The good news is you have options.

Five ways to manage inheritance tax

Here are a five ways you can manage the amount of IHT that might be paid on death by your estate, your partner’s, or maybe even your parent’s:

1. Get married! I’m not joking. If you’re in a long-term stable relationship, think about getting married or Civil Partnered. It’s advice I’ve given to clients in long term relationships in the past. Not to avoid paying taxes – everyone should pay their fair share. But to prevent the surviving partner from having to sell assets to pay a large IHT bill at the worst possible time.

2. Spend your money. Many people find, after years of saving, switching to a spending habit is hard. It can be. Clearly, you don’t want to run out of money, or just spend frivolously on stuff that holds no meaning. There is a balance to be had.

3. Give money away. Whether to your children, nieces, nephews, friends – whoever! The gifting rules are a little complex but for the purpose of this note, just know that if you survive for more than 7 years after making a gift, the gift is not subject to IHT.

4. Give money to charity or other good causes. Not only are you doing good, you may also be entitled to Gift Aid (income or capital gains tax relief against the money gifted subject to certain rules). And here’s a lovely bonus, studies show that giving actually makes us happier than receiving.

5. Accept. You will have gone. You will have done all you could to have lived a good life, spent money to help support that good life, gifted money to those you love and given to good causes that matter to you. If there’s still IHT to be paid, that’s OK. It’s the cost of a life well lived and wealth well used.

If you have a financial planner I strongly recommend you speak with her or him about your options. If you haven’t got one, drop me a line and I can make a few suggestions. And whilst you’re at it, check your pension death benefit nominations to check they are still in line with your wishes. They can normally be easily changed.

The Sandwich Generation

Of course, many of us in or approaching our 1000Weeks may also be dealing with ageing parents. Part of this may include encouraging them to think about sensible IHT planning. Thinking about our parent’s mortality, as well as our own, can be emotional. Take it easy, be kind to yourself, but don’t bury your head in the sand. Have the conversation. Maybe use this blog as a ‘starter for ten’.

You

As ever, I’m interested in you.

• What is your preferred way of managing the IHT you pay?

• Is paying IHT a concern of yours? Or

• Do you think, nice problem to have?

What ever your thoughts, pop the kettle on, make yourself a brew and drop me a line, I’d love to hear from you.

And remember, you’re never going to be any younger than you are today, what are you delaying doing that just needs a decision?

Until next week,

Ruth x

PS to aid readability I have simplified the details around IHT reliefs, and Gift Aid rules. Let me know if you have any questions. And of course, this isn’t advice, just a few pointers to help you along the way 😘

PPS photo above and below taken in the most wonderful art supplies shop in Amsterdam a few weeks ago…you know, the kind you could lose hours in…bliss.

Thank you for reading my words. I hope you enjoy them. If you did, it would be lovely if you could comment, like, subscribe or share my blog, I’d really appreciate it. Thank you