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Village Finance I


PROTECT THE FUTURE WITh A fAMILy TrusT


nheritance tax (IHT) is one of the least popular taxes in the UK and, while it is considered a “tax for


the rich”, the reality is that frozen IHT limits and the UK’s house price boom have drawn more people into this net than you might expect. The Government added nearly £4.7


billion to its coffers from IHT between April 1, 2015 and March 31, 2016 (the latest available figures from HM Revenue & Customs), a 22% increase on the £3.8 billion received the previ- ous year. HMRC said the increased rate of annual growth would have been af- fected by “a higher number of deaths in the months leading up to 2015-16 compared to previous years”. However, if your estate is going to be one of the ones affected, there are many ways you can mitigate this unwelcome tax provided you take the right advice. The key is to make a will, and


ensure you keep your will updated to reflect changes in your circumstances over time. For example, if you have children or grandchildren, receive an inheritance yourself, have a lottery win; anything that will have an impact on the value of your total assets should be a prompt to update your will accordingly. This will help you identify if you are


likely to have an IHT liability for your estate when you die. At present, the IHT nil rate band, as it is known – the amount below which you have no IHT liability – is £325,000. If you are mar- ried, and your spouse or civil partner dies before you but does not use any of their nil rate band, this will also pass to you on their death. So you can have as much as £650,000 – or £325,000 plus whatever remains from their estate that has not been used. There is also an additional thresh- old which allows you to pass your property to direct descendants, and


Austin Broad discusses how inheritance tax could affect you.


will be worth as much as £175,000 per person by 2020/21 – so in short, by this stage you could pass as much as £1m including a property free of IHT, providing you have children. No children, no additional threshold. However, parents are increasingly


dictating how the money they leave to their children can be used. One in three do not want their wealth to be squandered by their children, and a quarter of those over 55 want to ensure their family money is not lost if they get divorced, according to a recent survey from Prudential. Some go even further – one in


eight specify what their legacy is actually used for, while one in 10 go as far as stipulating their children must get professional financial advice when they receive their inheritance. This interest in influencing their


legacy may be one reason why there is a rise in the numbers of family trusts being used as a means of protecting wealth and passing it on to future generations. A family trust allows you to protect


your assets, which can progressively be added to the trust over time if you wish, and allows you to benefit from them while you are still alive. It can, for example, take the family home out of your personal IHT net as you would no longer legally own it, but you will still be able to live there while you are alive. You would need to appoint trus-


tees – a move to consider carefully, because there could be significant costs involved if you want to change them – and you would also need to


create a Letter of Wishes to outline how you want the money in the trust to be dealt with. The trustees have a legal obliga-


tion to administer the trust in the way you have set out, and this can be continued after you die if you wish. So if you want to be sure a child is old enough to deal with an inherit- ance, you can delay them getting the money. Other reasons for using a trust to delay the payment of an inheritance might include the need to secure an investment for a period of time, such as awaiting the payment of university fees. One other major benefit is that because the trust does not represent assets that are owned by you any longer, there is no need for the trus- tees to wait for probate for money to be passed on after you have died. This can significantly increase how quickly your beneficiaries can access funds, making their lives easier at what will be a very difficult time. However, a family trust needs care- ful managing and advice to ensure it is the right thing for you to do. So, speak to a good lawyer or financial adviser if you are interested in setting one up for your family.


If you would like to discuss any of the topics within this article, or


would like to talk to one of our IFAs, please do not hesitate to contact us: Tel: 01527 577775


Email: mail@afhgroup.com Website: www.afhwm.co.uk


AFH Wealth Management is a


trading style of AFH Independent Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority.


This article is for generic informa- tion only and should not be con-


strued as advice. Please contact us before proceeding with any course of action.


The Village July 2017 41


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