Inheritance tax can be a costly surprise for families caught unawares and unfortunately, coronavirus may force some families to cover the bill with limited time to prepare.
- Inheritance Tax: How one specific rule could affect IHT bill
This is an especially troubling issue as the disease seems to be particularly deadly for the elderly, the group most likely to face inheritance tax issues.
According to recent figures from the ONS, the majority of deaths involving covid-19 have been among people aged 65 and over, with 43 percent of these occurring in the over 85s.
Inheritance tax burdens couldn’t fall on a more problematic time either as households across the UK are seeing levels of fallout.
According to research from the Resolution Foundation (using figures from the ONS) 68 percent of households have seen a reduction in income.
On top of this, 31 percent of households reveal that they are unable to save as usual and 23 percent have had to dip into savings to cover living costs.
This is an incredibly difficult scenario but it is exactly because of these reasons that the need for effective planning is crucial.
Alex Price, a Director of Financial Planning for Charles Stanley, commented on our current sad state of affairs: “The spread of the COVID-19 virus reminds us just how precious life is and have all seen the utter devastation the pandemic has wreaked on our society and day-to-day lives.
“Losing a loved one is always a difficult and stressful time no matter the circumstances and grief can often be compounded by financial issues.
“It’s not an easy thing to plan for but in the end, it can make a significant difference for you loved ones left behind.
“Discussing how your assets will be dealt with when you pass away can be a difficult conversation to have with your family, as it is something you don’t want to think about.
“However, it can be one of the most important conversations you ever have as a family. Putting your affairs in order not only gives you significant peace of mind but can also help your family sort out your affairs more quickly and ease the burden.”
Inheritance tax warning: Coronavirus could trigger huge tax spike [WARNING]
Inheritance Tax laws have changed but experts express doubt [INSIGHT]
Martin Lewis: ‘Checking your tax code has never been more important’ [EXPERT]
Thankfully, the financial expert provided five key tips for financial planning during the coronavirus pandemic.
As it is revealed, taking relatively small steps now could provide real dividends and peace of mind for the long term:
Make a will
“Make sure you have a legally valid will in place; enlisting a solicitor to ensure it is drafted correctly and your estate is inherited exactly according to your wishes.
“There is a saying ‘where there is a will there is a war,’ so it is advisable to discuss your will with your family so there are no surprises for your family and they understand where all your paperwork is kept. “Many people assume if you are married everything will pass to your spouse.
“This is not the case if you have children and die without a will; this is known as dying intestate and can leave many problems for your family, as your spouse could only receive a proportion of the estate.”
- Inheritance Tax reform ‘into long grass’ amid Budget and coronavirus
Put together a summary of assets
“Put together a document which summarises all of your assets is becoming increasingly more important as a lot of people now hold investments online and therefore do not receive postal communications to their home, meaning family members may not know about them.
“Having a summary document is helpful for your executor and family, it means they know exactly what assets you hold and where to find them.
“This can be a basic document stating the company you hold the asset with, the account number and who to contact. Keep this in a safe place (perhaps with your will) and make your family aware of it.”
Set up a Lasting Power of Attorney (LPA) or Enduring Power of Attorney (EPA)
“In the event of mental incapacity, without an LPA or EPA, no one can manage your financial affairs. “Making an LPA whilst you are of sound mind allows you to plan ahead in anticipation that at a future date you may not have capacity.
“It gives you the chance to decide who would be best to deal with your financial interests and assets. An LPA covers decisions about your financial affairs and/or your health and care.
“An EPA only covers decisions about your property and financial affairs. LPAs replaced EPAs in Oct 2007 in most of the UK however EPAs are currently the only option available in Northern Ireland.”
Inheritance Tax Planning
“Inheritance tax can be a tricky subject to discuss but with careful planning, you can significantly reduce the amount of tax you will have to pay.
“IHT is levied at 40% of the amount over your nil rate bands, therefore it can take a hefty bite out of the wealth you are hoping to pass on.
“Speaking to your advisor about how you can plan to reduce this tax can help you work through the options available, which include gifts to family, setting up trusts or indeed passing on your pension to your beneficiaries while using other assets to fund your retirement.”
Introduction to advisors
“If you intend to pass on an inheritance to your family it is important, they continue to receive good financial advice, allowing them to plan for their future.
“Introducing your family to your adviser allows them to build a relationship so they can continue to provide advice when you are gone.
“This should give you peace of mind, knowing the money you have worked hard for continues to be managed appropriately when you are no longer here.”
Source: Read Full Article