Succession planning is ensuring a smooth transition of assets from one generation to the next. Once you have chosen which family members, friends, or even charities will inherit which assets on your death, it’s important firstly that those assets will go where they are intended, but also that any inheritance taxes due are also taken into account. Fortunately, there are solutions which enable you to plan for inheritance tax and leave the legacy you wish to behind.
The first part of succession planning is to write a will. A will is a legal document which sets out how your estate shall be divided upon death. You need to consider a will in each country in which you hold assets, and a local will in your country of residence should there be local laws governing the estates of the deceased (e.g. Sharia law in Muslim countries). Without a valid will, you will die ‘intestate’, meaning a lengthy probate process and your assets being distributed according to the laws of intestacy. It is also important to update your will to reflect any changes in your personal circumstances, e.g. asset gain/disposal, new-born children etc.
You should be aware of inheritance tax (IHT) laws governing assets you hold, for example, will your investment property overseas be subject to a local IHT bill on your death? IHT can cause financial problems for children inheriting assets, as the tax bill often has to be paid before the assets can be received. Using the property example, there is no liquidity available to pay the tax bill, and therefore the asset may have to be sold so that there is cash available to settle the IHT.
You should also be aware of IHT laws applicable to your domicility, as being an expatriate does not necessarily mean that your estate won’t be taxable on death. This is particularly a concern for British expats.
British expats can make the mistake that HMRC no longer can tax them once they have left the UK. This is not necessarily the case, as under UK law it is domicile, not residence, that determines liability for IHT on death. Often, domicile of origin is the determining factor (although you may also be deemed domicile or have elected a domicile of choice). Domicile of origin is based on the country of your father. If your father was born British or moved to and lived in the UK for long enough to be deemed domicile, then you will be considered UK domiciled.
What does this mean for you? On death, HMRC will be able to claim IHT on your estate value over and above your nil-rate band (NRB) of £325,000, and your main residence nil-rate band of £175,000. Below the NRB no IHT is due, but everything over and above that amount will be taxed at 40% on death. In the 2019/20 tax year HMRC collected £5.3bn in inheritance tax revenue. NRBs were due to raise with inflation from 2021, however in response to the Covid-19 pandemic the Chancellor froze them until 2026, which is expected to see more people caught in the IHT net in the future.
Our Wealth Advisers have assisted many clients with solutions for their succession planning and are experienced in these services. Argentum Private Wealth also has strong relationships with specialist tax advisers to ensure that all aspects of your estate are protected.
Any unused amount of your NRB can pass to your spouse or civil partner exempt from IHT, providing they are also considered UK domicile. This means that leaving assets to your spouse before passing them onto your children on second death will effectively double the NRB which you have available.
It is possible for a ‘non-dom’ spouse to elect to be UK domiciled up to two years after the death of their UK domiciled partner. This means that, as above, there is a planning opportunity to double the NRB available.
You can gift assets away before you die to reduce the value of your estate. Currently, gifts of up to £3,000 per tax year, or other gifts from normal expenditure, will be exempt from IHT. £5,000 can also be gifted outside of the IHT net if it is used towards a child’s wedding.
Gifts over these amounts, or outside or normal expenditure, will be classified as either a Potentially Exempt Transfer (PET) or Chargeable Lifetime Transfer (CLT), depending on the purpose and beneficiary of the gift. PETs can be of any value, but should you die within seven years of making the gift, they then are considered to still be part of your estate for IHT purposes; the amount of tax due reduces on a sliding scale between years three and seven. CLTs are gifts on which IHT is due immediately, but at a rate of 20%. The same seven year taper rule as for a PET applies for the remaining 20% of IHT.
A life insurance policy, written on a ‘Whole of Life’ basis, can be taken out to cover the value of IHT bill due in the future. The older you become, the higher your life insurance premium will be. You should ensure your life insurance policy is placed into trust, otherwise the pay-out value will form part of your estate and be taxable under IHT. Having a trust around your policy ensures that it remains outside of your estate, therefore not liable for tax and your beneficiaries receiving the whole amount to settle the tax bill.
If you have existing life insurance policies, you should ensure these are also placed in trust.
Trust planning can be a complex aspect of wealth management, but one which when done correctly can significantly mitigate the concerns of IHT. There are several types of trust available, and your Wealth Adviser will talk you through the most suitable options. Some trusts involve giving up all rights to your assets, whilst others allow you to maintain a passive income from them. Beneficiaries can be nominated on an absolute basis or at the discretion of the trustees.
Transfers into trust will be considered gifts and as such be treated as PETs or CLTs, and the seven-year rule applies. However, unlike direct gifts, trusts can offer additional tax advantages for you and your estate.
You may choose to leave some assets to charity, or to a university or political party. Transfers made to these institutions, or for ‘public benefit’ or ‘national purposes’, are made tax exempt and can cause the rest of your estate to benefit from tax relief. You can reduce your IHT rate due from 40% to 36% by leaving at 10% of your estate to registered charities.
Pension assets are exempt from IHT, so you may choose to spend more from your other assets over your pension (assuming you have a personal pension arrangement) and leave this to be inherited by your beneficiaries.
Relief on business assets or agricultural property may also be available.
Lastly, you may choose to spend more in retirement and reduce your estate’s value by using your assets for your own benefit. This decision may allow you to enjoy your retirement lifestyle more and have less tax due by your heirs when they inherit the remainder of your assets. You should plan your decumulation of assets whilst doing this to ensure it is done in a sensible and efficient manner.
Our Wealth Advisers will talk you through the best options for you and your beneficiaries, ensuring your solution is bespoke to your needs. Some estates may only need one of the above solutions, however for many it is likely to be a combination of solutions to create one complete succession plan. Get in touch today to learn more about how we can help.
Argentum Private Wealth specialises in investment management and planning for whichever objective you have – retirement planning, education planning, succession planning, or general investments from surplus cash.
Argentum Private Wealth specialises in investment management and planning for whichever objective you have – retirement planning, education planning, succession planning, or general investments from surplus cash.
Argentum Private Wealth specialises in investment management and planning for whichever objective you have – retirement planning, education planning, succession planning, or general investments from surplus cash.
Argentum Private Wealth is a well-established private wealth firm that offers career opportunities to individuals looking to make an impact in the financial industry. We provide a wide range of services, from asset management and business planning to estate planning and tax advice. Our team of experienced professionals is committed to providing personalized service tailored to each client’s unique needs.
