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Inheritance – A podcast with Jason Butler

Welcome to Age Space Money, the podcast that gives you insight, ideas and perspectives on elderly care and finance. This podcast is presented to you by Annabel James, founder of Age Space, which is an online community for anyone looking after, or supporting, an elderly parent; and Jason Butler, financial wellbeing expert and author of  “Money Moments: Simple Steps to Financial Wellbeing“.

In episode 4 Annabel and Jason discuss the topic of inheritance. Jason offers his advice regarding: how to balance care and funding needs with leaving something for relatives, planning across generations, and gifting versus loaning.

You can also find this Age Space Podcast episode and more on Apple Podcasts.

Jason explains your options if you are looking to give away wealth

If you have more assets or money than you need in your lifetime, you have three choices:

  1. Give the money away to people that matter to you now, when they can make better use of it, instead of waiting until you die.
  2. Leave some or all of your money to charity, and the amount you give won’t be subject to inheritance tax, whether you do this now or when you die.
  3. Do nothing, and if the excess is more than around £1 million and you have a home, and are married or in a civil partnership, then you will pay inheritance tax of 40%.

Lots of people want to help children or grandchildren with either loans or gifts to support them to fund a house purchase, university or starting up a business.  However, your needs should come first.

Jason explains when Inheritance Tax applies

With inheritance tax, you pay 40% above a certain amount – for most people, that’s going to be about £650,000, or with a home, nearly £1 million.

If you give an asset away to an individual or trust, and live for at least seven years following that, the gift falls immediately outside of your estate after that time.

However, if you die within the seven year period, there is normally a tapering of the charge if the gift is in excess of your nil rate exception, which is £320,000.

Jason explains what happens if you don't want a gift to go directly to a person

You might want the person who is giving the gift to loan the asset. The advantage of this is that it is still in the person’s estate for inheritance tax purposes and care fees, but avoids growth of the asset occurring in the person’s estate.

For example, someone in their 70s or 80s who is not sure if they will need the money, but wants to help other members of the family, could lend £40,000-£50,000 to help grandchildren buy a home; they could take a charge against that house, and ask for the money back at a later date.  This way, the asset is frozen in the estate and doesn’t grow and add to the estate, and the loan can also be called back in the event of the recipient facing relationship or financial complications.

Jason explains how an inheritance trust works

If you want to give away money, but are worried about its security, for example, if the person you are gifting to is at risk of getting divorced, you can put it into a trust.  

This becomes a separate legal entity and whilst the person you are gifting to can still benefit from the money, it is unlikely to be assessed in the case of a divorce or bankruptcy order, however you would need to check the legal rules around this.

The same applies if you want to gift to a younger person, say, in their twenties:

The trust could lend them the money, and it would be outside of your estate for inheritance tax purposes, -as long as you live for seven years-, and also not in their estate, which could protect against any relationship or financial complications.