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Inheritance planning guide: Calm and tax-efficient inheritance planning

Have you been postponing writing your will? You're not alone, discussing matters of death can be challenging, but it's a crucial aspect of financial planning. In this inheritance planning guide, we offer practical advice to simplify the entire process, benefiting not just you, but everyone involved.

Be aware of the natural tendency to "snooze" planning for death

Talking about death is never a light topic of conversation. In this inheritance planning guide we won’t dwell on this too much but it is important to recognise that, as humans, it is natural for our brain to shield us from fear. We are hard wired to create obstacles and biases around death which makes it difficult to start inheritance planning.

So, you will find yourself “snoozing” the job for months if not years which is why open and honest communication is at the heart of inheritance planning. Making your inheritance plans clear and easy to understand will help give you peace of mind and aid both those who have to administer the estate and those who benefit from it.

What's the difference between inheritance and estate planning?

The terms ‘inheritance’ and ‘estate’ planning are sometimes used interchangeably, which isn’t strictly correct. They refer to slightly different things, so let’s take a look at each separately.

  • Estate refers to everything you own, all of which must be accounted for as part of your inheritance planning and the process of administering your will.
  • Inheritance is the process and set of laws governing how your estate is distributed and how taxes are collected.

This guide to inheritance tax planning is going to deal with both of these by asking the key questions: what is in your estate? How, and to whom, do you want to distribute it? How can you make the whole process as painless and tax-efficient as possible? How you approach these questions is important. Of course, you won’t be involved in the administration of your own will, but that doesn’t mean you can’t help make it easier for others when the time comes.

"I won’t be here, so why does inheritance planning matter?"

Taking the attitude of “well I won’t be here, so what does it matter?” is actually pretty common, and you’d be forgiven if it crossed your mind. Leaving your will or inheritance hanging is unlikely to make for a peaceful passing. The last thing you need as you approach your final days on this earth are “have I made a mistake?”

There is also the matter of loss of mental faculties. It’s important to make your wishes known whilst you’re in good health so there is no doubt, should you lose the capacity to communicate, what your wishes are.

It’s also important to think of others. Dealing with the death of a loved one is a hard thing to go through. Things that normally wouldn’t cause an issue can become a further emotional challenge in what is an already difficult time.

For this reason many people ask a financial adviser to provide them with support, coaching and the knowledge needed to plan around inheritance. If you want to find out more about this don’t hesitate to get in touch with one of our inheritance specialists. The best way to find a financial planning is on Google, where you can read a financial adviser’s testimonials from clients.

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Planning for inheritance takes away the stress

A well planned and communicated inheritance also helps you. Knowing everything is under control helps keep things calm as you approach the end of life, for you and for your friends and loved ones.

Inheritance tax is, just like all taxes, much better dealt with head-on and in advance. Waiting until after you’ve died means a reactive tax plan that cannot take advantage of some of the ideas you’ll see in this guide. Your will and inheritance plan also need to be updated throughout your life as your situation changes.

Making a will and inheritance planning are two separate things. Having a will is very important. If you die without a will then the laws of intestacy take effect. These intestacy rules are very specific and can’t be appealed. However, you can make a request under the inheritance act for specific people to be considered as part of the ruling. One very important point is that partners who aren’t married or in a civil partnership will not be considered and have no automatic right to inherit.

Client eye view : Linda, Stroud

“As soon as my husband passed away, I got in touch with financial advisers Unividual for help. They had already advised the whole family on inheritance matters, so that was at least one thing I didn’t need to worry about as I was heavily involved in the process with my husband. This meant my adviser could focus on supporting me through the difficult days following the death, rather than asking me for all the required documents or having to fill out a load of financial information.”

“Me and my family were so grateful to have the team at Unividual supporting us all after my husband’s death. Everything was a blur and I didn’t know if I was coming or going. I just knew that all I had to do was pick up the phone and someone at Unividual would be there. Their advice and support was and still is invaluable, when they say they treat each client as an individual, they really mean it.”

The tax rules surrounding inheritance

The rules around the tax on inheritance are actually pretty simple.

  • Currently, tax is payable on everything over £325,000.
  • If you leave any money above this sum to a spouse, civil partner or a charity or community sports club then there will also be no tax to pay.
  • If the estate is worth less than the £325,000 allowance, this unused portion can be passed to your married or civil partner in the event of their death.
  • Giving away your home to children or grandchildren (including adopted, fostered or stepchildren) can increase the threshold to £500,000.
  • Any value over the threshold will be taxed at 40%. Leaving 10% or more to a charity can reduce this rate to 36%.

The first step after death will be to obtain the total value of the deceased person’s estate. This is done by applying for probate and valuing the total of all property, assets and goods they owned. This does include even smaller items such as furniture, jewellery and prized possessions. You might have to seek out a professional to help with this.

Any banks, building societies and managers of insurance, pensions or investments also need to be contacted. Anyone who was owed money should have a copy of the death certificate sent to them, and arrangements to repay the debt made. Most institutions will be understanding and give plenty of time for the estate to be valued.

If there is not enough money to repay debts, property may have to be sold, even if that property has more than one name on the deeds. Beneficiaries can’t be paid until charges and debts on the estate are paid.


What happens to pensions and investments when it comes to inheritance?

Investments are simpler, simply alert the investment manager and prove to them who is dealing with the estate. They’ll then give you an investment value that can be added to the probate figure. Depending on the exact terms of the will it may not be necessary to divest the investment. Shares can normally be passed on directly to the named beneficiary, but some shares may be restricted from being transferred by the terms under which the shares were issued. Contact the listed company secretary if you’re in any doubt about it. Physical investments like property or collectables just need to be valued the same as any other goods.

Pensions are more complex and it will depend on the age of the person who died and if they had already begun taking funds from the pension when they died. The best course of action is to contact the pension administrator who can help confirm the exact details. Even if they are a little more complex, there is normally no inheritance tax to pay on pensions. If the pension was a joint-life or guaranteed annuity, named beneficiaries may be able to continue collecting payments, but these will be taxed based on the person receiving them.

Why inheritance planning is so important

Planning your inheritance means you can ensure the people and organisations who matter to you receive funds from your estate after you die. Part of this planning is about how tax is collected and part is about the wellbeing of the people you leave behind. Let’s look at how we can achieve this:

Start the conversation early to avoid arguments

There is a long-running cultural habit in the UK to “not talk about” your plans for inheritance and your will in general. It might seem this is the best way to avoid arguments, but that only holds true while you’re alive. Once your will becomes public, as it does after probate, it can cause a great deal of anger and many arguments if people feel “wronged” by your decisions.

That’s why when Unividual offer advice on inheritance we often try to get the whole family together. There might be parts of your estate that you want to keep private or separate, but it’s a good time to lay out your general plans. This lets everyone understand your wishes with someone objectively sitting in the middle to help coach conversations. Any misunderstandings or misgivings can then be ironed out before they cause too much bad feeling. You’d be amazed at how loving and giving people are, most often family just want to see things done fairly and ensure that your wishes are fulfilled after your death.

Unclear who should benefit from your estate?

If you have no spouse, civil partner or children, then it’s still important to have a will and plan for your passing. As we’ve seen, the laws of intestacy will apply if you don’t have a will. Ultimately this can lead to the entity of your estate going to the government. Is this really what you want? Picking a partner, friend, someone who helped you in the past, or simply a charity to benefit from your estate are all options.

Planning gifts before you die

This deals mostly with your children and friends, as gifts to spouses or civil partners are not counted for tax purposes. As long as your spouse or civil partner is resident in the UK permanently, you may gift them as much as you like without paying inheritance tax later.

To others, family and friends, you may give up to £3000 of gifts each year. This £3000 allowance can be split between as many people as you choose. Small gifts of £250 per person can be given as many times as you wish, as long as a gift from another allowance is not given. You can also give wedding, or civil partnership, gifts tax-free, depending on the relationship:

  • £5,000 to a child
  • £2,500 to a grandchild or great-grandchild
  • £1,000 to any other person

Any gift you give, no matter how large, is exempt from inheritance tax if given 7 years before your death.

Add your business affairs to your inheritance plans

If a business is to be included in the estate, then there are some reliefs that can be claimed. This relief, at either 50% or 100%, can be claimed on property and buildings, unlisted shares and machinery. It is essential you join up your approach to your business exit and continuity planning with inheritance planning too. There are also insurance products, called shareholder protection insurance, that will make it clear what must happen to shares after you die. It will also provide funds to allow the business to continue operating efficiently.

Add pension planning to your estate plan

Managing your pension, and even paying into a pension on behalf of a spouse or child, can be a very effective way to plan for inheritance tax. Going into detail isn’t practical in this guide, but it’s possible to make sure your pension, and any pension wrapper, is made as efficient as possible.


Setting up a trust, which can hold money, investments, land or buildings, can protect your assets for a nominated person or group until a specific point in time. An example would be placing a property in trust and defining what happens to any rental income for a set period. Trusts are a flexible vehicle to help to divide and manage assets so both your wishes, and the needs of your beneficiaries, are fulfilled in a timely manner.

Deal with property effectively

While a parent can sell or gift property before they die, it must be carefully planned. If a parent sells their property to a child at below market value, that gap is considered a gift. Additionally, it is assumed that the market value will also attract Capital Gains Tax if the price has gone up since you brought it. If it’s your main residence, this tax does not apply.

You should also plan for your long-term care. Should you need to pay for long-term care it can be tempting to consider selling off the family home to fund this. There are many unscrupulous firms who will claim to be able to shield your home from means testing in the event you need long-term care. In England, If you have less than £23,250 in savings, aside from your home, the local council must allow you to defer paying for your care until after you die. At this point, your care costs (plus some interest) are paid. In the meantime, your home can be rented, generating helpful income. Had you sold the property to pay for the care, this would not have been possible.


Acting early is the best way forward

Planning your inheritance is better done well in advance of old age. Some of the planning requirements are very intricate and can take a lot of time to organise. Leaving it too late can mean you miss out on valuable tax breaks or, even worse, fall foul of unexpected fees and taxes.

Taking action early and having a solid plan in place can make sure that your legacy is protected and that your wishes for how your estate will be divided are clear and well-organised. This peace of mind will extend to your loved ones too, who will know exactly what your wishes are and why your estate plan is how it is.

While the actual tax is simple, the planning behind it all is highly complex. Getting all the planning done well ahead of time should be firmly on your to-do list instead of each year hitting that “snooze” button for another time.


Author: Cherie-Anne Baxter

Date: 22nd October 2021


The Financial Conduct Authority do not regulate will writing, trusts, inheritance tax and estate planning.

Will writing is not part of the Quilter Financial Planning offering and is offered in our own right.

There are external links in this guide, when you click these links Unividual and Quilter Financial Planning Limited are no longer responsible for the accuracy of the content.

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