Beware: Bad Financial Advice Can Destroy Families

Raj of 'The Finance Lab' is having a terrific response from CLV readers advising you on all things financial. Regarding the pensions article we wrote about in our last issue, it has been sad reading in the newspapers recently of some poor people who have lost a lifetime of earnings due to these sharks. Unbelievably some have even resorted to taking their own lives plus many are heading to the divorce courts over the loss of pension funds - Shocking! What a terrible time, being harassed over the phone and constant emails and texts - they are chasing your pension pots make no doubt about that!! These charlatans are taking advantage and don't become a victim yourself.

You need someone reliable who you can trust, so pick up the phone and call Raj for sound advice free of charge on any financial topic - it will save you a lot of heartache in the end.  - Paul Ward


Keeping it in the Family?

As house prices in the UK and stock markets around the world continue to rise, more and more people are having to consider the issue of Inheritance Tax (IHT). Planning to help our clients pass on their hard earned wealth to their loved ones has become an essential item on their agenda.

As a quick recap IHT is payable (at a rate of 40%) on an individual’s estate on the value above £325,000 (if married this could be doubled to £650,000 on death of the second spouse). If this is a possible concern, what steps should you take to ensure your wealth is transferred to those in full? We’ve outlined some steps below that you could consider.

(PLEASE!) Make A Will. Making a Will is relatively straightforward and inexpensive, and there’s really no excuse for not doing it. You may think you don’t need to do anything as you want all your assets to pass to your spouse but that won’t necessarily be the case. If you die intestate (that is, without making a Will) then other family members may well benefit from your estate whether you want them to or not. So make a Will – and make sure you keep it up to date.

Start to give money away. Many people still don’t know that they can make gifts out of regular income. This can be an excellent method of passing wealth on to the next generation and providing the gifts pass three key tests they will not incur an IHT liability. The gifts must be made out of income (as opposed to selling assets to fund them); they must be made on a regular basis and they must not reduce the donor’s standard of living. Timeframe to IHT saving - Instant.

Make your gifts sooner rather than later. Any gift given more than seven years before the death of the donor is free of IHT – a good example of the need to plan early. Remember though, that the ‘gift with reservation’ rules apply: If you are giving something away you cannot continue to enjoy the benefit of it. For example, you cannot give your house to your children and continue living in it (without paying market rent!). Timeframe to IHT Saving - (Maximum) 7 years.

But some gifts are more equal than others... Certain gifts are treated differently, and in this case the ‘seven year rule’ doesn’t apply. Both parents can give up to £5,000 to their children when they marry, and annual gifts of up to £3,000 can also be given. If you cannot give large sums of money then it makes sense to make use of these smaller gift allowances. Timeframe to IHT Saving - Instant.

Make Use of Trusts. Many people believe that trusts are highly complicated and are only to be used for multi-million pound estates. Far from it. They can be simple and relatively inexpensive, yet still allow you to transfer wealth out of your estate and save IHT into the bargain. Yes, you’ll need specialist advice but the potential savings in tax will certainly cover the cost of that advice many times over. Timeframe to IHT Saving - from 7 years.

Use a Whole of Life insurance policy. Pays a lump sum on second death (for married couples) that will cover the potential IHT liability. Timeframe to IHT Saving - N/A - Pays outstanding.

Enterprise Investment Schemes. These investment vehicles can mitigate IHT if held for at least two years and at death, as well as provide (almost) instant access to the investment during this period. It also provides income tax relief and can allow capital gains tax holdover relief if held at death. A maximum of £1 Million can be invested per year. EIS’s are classified at the riskier end of the investment spectrum, as they are geared towards investing in smaller companies looking for investment to finance growth. Provides a solution for those in poor health or at an age where time could be an issue. Timeframe to IHT Saving - 2 years

Agricultural Property Relief. Essentially geared towards farmers and is dependent upon how HMRC considers their status at death and the use of the property in the previous two years. Timeframe to IHT Saving - 2 years.

ISA AIM Portfolio. Alternative Investment Market (AIM) shares if held in an ISA for at least two years at death will fall outside of an individual’s estate for IHT. This is really at the end of the risk spectrum and probably not suitable for most, but it can provide an interesting option for those with the appetite for riskier investments. Timeframe to IHT Saving - 2 years.

Pensions. With the new pension rules introduced by the coalition Government which included the abolition of the 55% ‘Death Tax’, money invested in a pension is now a very sensible way of transferring wealth down through the generations, especially when considering the different types of assets that can be held by schemes such as a SiPP or SSaS. Timeframe to IHT Saving - Instant (generally).

Flee the Country. A little extreme with this suggestion, but if you are permanently resident abroad and intend to remain so then it may be that your country of domicile has changed. This could well impact favourably on the IHT calculation regarding your estate. As with trusts, this is an area where specialist advice is very much required but once again the savings can be significant. IHT Saving - Variable.

* Property portfolio owners - interesting one this for you property investors. Did you know that there is (perfectly legitimate) planning that will allow you to maintain control of the portfolio, draw an income, mitigate CGT and IHT? Timeframe to IHT Saving - 1-3years.

(Finally!) Do Nothing. You could wish to make no plans and be happy to pay whatever tax is due (or more precisely your estate pays). In 2014 this figure was close to £3.41 Billion.

Transferring wealth to your intended beneficiaries requires careful planning, but if that planning is done properly then the savings made in Inheritance Tax can be substantial.

Specialist help is needed in many areas and we are always happy to advise clients in what can be a very complicated area. However with the right advice there’s no reason why you can’t transfer the wealth you want to transfer – while continuing to enjoy the life you deserve. In our opinion it’s your wealth, no-one else’s. So please ensure you Keep It In The Family.


If you do have any questions or require any further advice please feel free to pick up the phone and call me on:

0116 319 5877

or if you prefer email me on:

I Look Forward to Helping you with your financial queries

- Raj 


Ground Floor, 94 New Walk, Leicester LE1 7EAT 0116 319 5877