Estate planning for the next generation

Estate planning for the next generation

Building up a sum of money to leave to future generations through earnings and investments is the goal for many over the course of their lifetime. To avoid the taxman becoming the main beneficiary of yours or your parents’ hard work and estate some careful planning is required.

Estate planning will involve a number of stages, including the setting up of Wills and Lasting Powers of Attorney. Poundbury Wealth Management outlines here the key elements to help the pot of money your parents have worked hard to build up for the family, actually goes to the family.

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Inheritance Tax – rates and allowances

Inheritance Tax planning is an important part of the Estate Planning process. If the total assets in an estate exceeds the “Nil Rate Band”, Inheritance Tax (IHT) will be payable on the surplus at 40%.

  • The Nil Rate Band is the amount you can leave to your heirs without paying IHT. It currently stands at £325,000 per person.
  • Importantly, you can pass any unused Nil Rate Band on to your spouse or civil partner when you die which means that if the first partner to die leaves everything to the surviving partner, then the surviving partner will have a Nil Rate Band of £650,000 on his or her death.
  • From April 2017, a new element can be added to an individual’s Nil Rate Band using the Main Residence Nil Rate Band. This new allowance provides a supplement to the basic Nil Rate Band if the family home is owned by the deceased and is left to direct descendants, so children (including a step-child, adopted child or foster child) of the deceased and their lineal descendants.
    • The proposed new rules will allow up to a further £100,000 to be added to an individual’s Nil Rate Band.
    • This new allowance can also be transferred to a spouse or civil partner on death, giving a total combined Nil Rate Band of £850,000 (ie a combined Nil Rate Band of £650,000 plus two Family Home Allowances of £100,000) if the surviving spouse or civil partner were to die in the 2017/18 tax year.
    • The Family Home Allowance is due to increase to £175,000 by 2020 so the total combined Nil Rate Band for a couple could potentially reach £1 million at that stage, depending on the value of the property being bequeathed.
    • However, couples with a combined estate value of over £2 million won’t qualify for the full allowance: once their estate hits the £2 million mark, there will be a tapered withdrawal of the additional Nil Rate Band. This will be at a withdrawal rate of £1 for every £2 over this threshold.
    • Even if the first spouse/partner dies before April 2017, the surviving spouse/partner may still benefit from the deceased partner’s family home allowance providing he or she dies after April 2017.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

This is a complex area: talk to a financial adviser if you think that you or family members may have a potential IHT liability. Contact us to find out more.


Mitigating IHT

 There are a number of measures you can adopt to reduce the size of your estate for IHT purposes, including the use of lifetime gifts and of specialist trusts and insurance-based arrangements

  • Gifts

If you have an estate that exceeds the Nil Rate Band, you can pass on your wealth during your lifetime using lifetime gifts. There are a number of gift allowances that you can use to reduce your potential IHT liability.

  • Every individual can gift up to a total of £3,000 per year tax-free and any unused allowance can be carried forward for one year as long as you use up the current year’s exemption first.
  • In addition to this, you may gift £250 per year to any number of different people.
  • There are other gift allowances too such as those for wedding gifts and gifts to charities.
  • In addition, if you have surplus income (as opposed to savings and investments), you can make use of a special exemption that allows you to make regular gifts out of that surplus income without incurring an IHT liability. This needs to be set up and recorded carefully, so do get advice if you want to use this exemption.

If you exceed the gift allowances, then the gift may be wholly or partly considered as still in your estate until seven years have elapsed since making the gift and so considered when your IHT liability is assessed.

  • Specialist Trusts and Insurance-Based Plans

There are a number of special trust arrangements and insurance-based plans that can be used to give a reduction in your potential IHT liability. More tailored trusts can be arranged for complex arrangements and we will enlist the help of colleagues in law firms with this when needed.


Where to go for more advice?

 Poundbury Wealth Management LLP offers expert financial advice in investment planning, pensions planning, inheritance tax planning and long term care planning. Contact us at or call 01305 266866.

Partner Tim Gallego is a member of The Society of Later Life Advisers (SOLLA), a not for profit organisation set up to meet the need of consumers, advisers and those who provide financial products and services to the later life market.

Please note that advice relating to a Will or Lasting Power of Attorney involves the referral to services that are separate and distinct to those offered by Poundbury Wealth Management LLP or St. James’s Place.

The Partner Practice represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

Wills, Lasting Powers of Attorney and Trusts are not regulated by the Financial Conduct Authority.

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