Three very important questions you need to consider, sooner rather than later

Inheritance Tax (IHT) in the UK may be one of life’s unpleasant facts, but with the appropriate IHT planning and professional advice, we could help you pay less tax on your estate. The aim of this guide is to provide a brief outline of IHT, a subject that was once something that only affected very wealthy people.


Taxing times

The rapid rise in the property market in recent years has not been matched by a corresponding rise in the IHT threshold. The threshold is currently just £325,000 – any assets above this level are taxed at 40%.

Married couples and registered civil partners have a joint estate of £650,000 before any IHT is payable. The threshold usually rises each year but has been frozen at £325,000 for tax years up to and including 2017/18. Unmarried partners, no matter how long-standing, have no automatic rights under the IHT rules.

Your estate consists of all the assets you own including your home, jewellery, savings and investments, works of art, cars, and any other properties or land – even if they are overseas.

It’s usually payable on death. But there are certain circumstances (if you put assets into certain types of trusts, for example) when IHT becomes payable earlier. Any part of your estate that is left to your spouse or registered civil partner will be exempt from IHT. The exception is if your spouse or registered civil partner is domiciled outside the UK.

Nil rate threshold

Every individual is entitled to a Nil Rate Band (that is, every individual is entitled to leave an amount of their estate up to the value of the nil rate threshold to a non-exempt beneficiary without incurring IHT). If you are a widow or widower and your deceased spouse did not use the whole of his or her Nil Rate Band, the Nil Rate Band applicable at your death can be increased by the percentage of nil rate band unused on the death of your deceased spouse, provided your executors make the necessary elections within 2 years of your death.

Gifting it away

You are allowed to make a number of small gifts each year without creating an IHT liability. Remember, each person has their own allowance, so the amount can be doubled if each spouse or partner.

We all look forward to stopping work, embarking on a new path and making the most of our new-found freedom. But with all the talk and concern about dwindling retirement funds and our shaky economy, many retirees and soon-to-be-retired boomers need to consider three very important questions, sooner rather than later.

Ask yourself these three questions when planning for your future retirement:

1. How long will I be retired for?

According to the Institute of Fiscal Studies, 58.5%[1] of workers haven’t given any thought to how long their retirement could last. A 65-year-old can now typically expect to live for about another 20 years. That could mean you’re retired for almost as long as you’ve been saving for retirement. Be clear when you want to stop working, but think of your pension savings as deferred pay and budget accordingly.

2. How much do I need to invest?

Paying more into your pension may not necessarily be top of your to-do list. It’s tempting to think it’s something you need to worry about in the future. You need to be investing as much as you can for as long as you can to make every year count. Maximising tax allowances can also make retirement funds last longer. As well as contributing to your pension pot, you can use other savings and investments to help fund your retirement.

3. How will I stay on track?

Once you’re investing, it’s also worth keeping sight of your retirement goals to make sure you’re on track to meet them. 74% of under-45s with pensions have no idea what their pension pots are currently worth, and 79% say they don’t know what income they are expecting when they retire. These figures suggest many people don’t really know the true value of their pension until they are older and in the run-up to retirement, despite the fact that they are likely to be receiving annual pension statements. You should regularly review your pension.


[1] All figures unless otherwise stated are from YouGov Plc. Total sample size was 2,018 adults, of which 1,361 have a pension. Fieldwork was undertaken between 9–12 August 2013. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).