More than a third (36%) of adults across the South East have not made financial arrangements to protect their families when they die, new research has revealed.
A survey, by Lycetts Financial Services (LFS), also revealed that 32% do not understand how Inheritance Tax could affect their loved ones.
“Most people focus on earning enough to buy a home and accumulate other assets during their lifetime,” said Nick Straker, LFS divisional director. “They regard this as more important than considering the potential tax consequences further down the line.
“This is the ideal time to take stock of your financial assets and circumstances, and plan for the future. It could be the most important resolution you ever make.”
Currently, the first £325,000 of an estate is not subject to Inheritance Tax under the “Nil Rate Band” (NRB). Where the family home is also passed to a direct descendant then the NRB is boosted by a further £175,000 to £500,000.
If a couple are married and pass assets each to other, then the NRB can be inherited so that it can be up to £1 million on the last to die.
However, the rise in property values in recent years has still seen more people’s assets exceed the threshold and be subject to a 40% tax rate.
Mr Straker said: “A Potentially Exempt Transfer (PET) allows you to make financial gifts of unlimited value without there being an Inheritance Tax liability. The only proviso is that the individual making the gift must survive for the following seven years, and that the gift itself is potentially subject to Capital Gains Tax (CGT) on transfer.
“Before committing to PETs, consideration should be given to what your future financial needs may be. With life expectancy increasing, you need to consider how much income you will require to continue living the life you want to lead.
“The problem of giving assets away is that you don’t know how long you are going to live and there may also come a time when you need to pay for care and nursing home costs.”
He added: “The wisdom of making a PET when your children may be young, impulsive and have not yet established themselves, is another important consideration. Generally, people are getting married later and having children later, so planning becomes more difficult.
“Life Insurance, however, is a good short-term measure. It protects loved ones if something were to happen unexpectedly, and is relatively inexpensive. When your children are likely to be settled and more mature, and you have a better idea of your financial needs going forward, a PET might then be explored or other IHT plans can be considered.”
Mr Straker also reinforced the importance of building up a pension fund, which can offer further financial support for a spouse and family.
“Pensions are highly tax efficient and are not affected by Inheritance Tax. You are never too young to start saving for your pension and should aim to build as big a fund as possible.
“My final piece of advice is to seek guidance from an experienced financial adviser. An audit of all assets is a good starting point to plan for the future.
“A YouGov survey revealed that only 31% of those who made resolutions in 2023 kept them all, but arranging your finances is one you should definitely stick to.”
