Passing on family wealth: Estate and inheritance tax planning

RORY STUART: Good afternoon all.

HELEN PERRIN: And as many of you will already know atomos is a financial planning and wealth management firm, with which WTW has a strategic alliance. So our alliance with atomos gives us access to 60 experienced financial planners across the UK, and provides atomos individual clients with access to our best investment ideas through the portfolios managed by WTW investments line of business.

So our topic for today is estate planning and inheritance tax. And it's received much attention over the last year or two. And so many of you will see that in the UK budget in October '24 there was provision to include pension death benefits for inheritance tax from April 2027. So we'll have a look at some of the detail of that.

Now, we've had draft legislation last July on what's going to be included and what's not included. So we'll go through some of those details. And there were some more rumors last year ahead of the budget in November '25, to potentially widen those, the inclusion of inheritance tax out by restricting lifetime gifts. Those rumors didn't materialise in the end, at least not yet. So there's still plenty of opportunity to gift money during your lifetime and make use of inheritance tax planning strategies, which we'll cover today.

So I'm going to start us off today by looking at the importance of having a will and regularly reviewing that, and ensuring you have powers of attorney in place no matter your age. We're then going to move on to explore the nil rate band and different exemptions for gifts on death and during your lifetime, and the use of things like trusts and family investment companies in estate planning.

We'll then look specifically at those changes to inheritance tax on pension death benefits and how it could impact your estate planning. And we'll finish off today looking at ways to mitigate or pay inheritance tax on assets you want to retain in your estate. There's sometimes good reasons to keep money in your estate, but there are options to ensure for that or protect against it, which we'll explore in a bit more detail.

So by the end of today's session, you'll have more idea of the options available to you for estate and inheritance tax planning and some of the advantages and disadvantages of those options. And we'll also signpost additional sources of information and individual support options for those who need them.

And we're very happy to take questions today. If you could pop questions in the Q&A function, I don't think I've got the ability to unmute you to ask a question live, but you can pop those questions in the Q&A section. If you want to post anonymously, there is a toggle as well to post anonymously if you prefer to do that, and we'll answer those as we go. And we'll also have a dedicated session at the end to go through those questions.

So starting with wills, according to the National Wills Trust, only 53% of adults in the UK have a will in place, with those who don't saying they believe their assets or their estates are too simple and they think they're too young, or they simply just haven't got around to it.

So the existence of a will can make things a lot smoother for loved ones in the event of death, and ensure that your assets are distributed as you'd hoped. So even if we hope that it's unlikely to be needed for many years, having a will in place no matter your age is my first tip for estate planning.

Over half of us have also never spoken to anybody about what we want to happen to our assets in the event of our death, or things like our funeral arrangements or in future childcare arrangements, for example. And those conversations are not always going to be easy ones to have. But it is important that our loved ones know what we'd want to happen to our assets in the event of death, and make sure we're clear on what those plans are, and have documented those in wills and expressions of wishes, for example.

It's also important to review your wills and expression of wish forms regularly. So if and when your circumstances change, and perhaps every five years anyway, to allow for things like changes in legislation over that time.

And the reason that you need a separate expression of wish for death in service benefits and pension arrangements, is that those benefits don't automatically fall under your will. And they usually managed separately by pension trustees or insurance companies, who will use your expression of wish to understand what you want to happen to those assets on death, and that at the moment will also keep them out of your estate for inheritance tax.

And we're going to come back to how that's expected to change for pension death benefits from April '27. But that should still be the case for death in service arrangements, where you've completed an expression of wish that's normally passed by a trustee or via life insurance company and doesn't come into your estate estate.

And I mentioned that only half of us have a valid will in place. Even fewer of us have made provision for lasting powers of attorney. So a power of attorney allows you somebody to act for you in the event you are unable to act for yourself, if you lose mental capacity for example. Importantly, that power doesn't kick in unless and until it's needed.

So again, I'm a big fan of putting those powers of attorney in place regardless of your age. Again, the hope is that they will never be needed, and certainly not for a long time. But there are some high profile cases. Michael Schumacher, for example, where you can see the benefit of having a power of attorney in place at a younger age, so that somebody that you trust can make decisions around your health and financial affairs.

So we've covered wills, an expression of wish to make sure that assets pass as you'd want them to. The other part of estate planning is to think about inheritance tax and options to mitigate that where possible. Inheritance tax is applied to the value of an estate above the nil rate band on the death of an individual.

The nil rate band has been frozen at £325,000 per person for many years now, which has increased the number of estates becoming subject to inheritance tax. And the inclusion of pension assets from April 2027, is expected to increase that number further. But it is worth looking at some of the exemptions which do and will still exist beyond April '27.

So importantly, there's no inheritance tax for assets passed between spouses, as long as those spouses are what's known as long-term resident in the UK. You can also pass any unused nil rate band to a spouse who's long-term resident in the UK on death, potentially providing up to 650,000 of nil rate band on the second death for a married couple if the first spouse doesn't use theirs.

There's also a main residence nil rate band that was introduced back in 2017 due to the increase in property prices, meaning more estates were becoming subject to inheritance tax. And the residence nil rate band applies in addition to the standard nil rate band, and is now £175,000 per person. And that applies if the main resident is left to direct descendants such as children, grandchildren, stepchildren for example.

However, the residency nil rate band is reduced for estates valued at more than £2 million , and it reduces by £1 for each £2 above the two million threshold. So that's going to be completely eroded for estates valued at 2.35 million or more, or where a spouse has passed on their residence nil rate band. So somebody has two residence nil rate bands. It would be estates valued at more than £2.7 million on second death.

Just one caveat when it comes to spouses and civil partners. So the ability to transfer unlimited amounts tax free assumes that both spouses or civil partners are long-term resident in the UK. Now, the term long-term resident replaced domicile in April '25, but it's basically looking at pattern of residence.

So potentially looking back 20 years. So it's not an easy test always. And if you have a situation where you're not sure what your long-term residence position is, it's worth taking some tax advice on that. But if a UK spouse passes benefits to a spouse who isn't long-term resident, there's a limit of £325,000 on that spousal exemption. So something to be aware of if you or your spouse aren't resident long-term in the UK.

Also worth noting that for partners who are not married or in civil partnership, there is no specific exemption from inheritance tax, and it's not possible to transfer those unused nil rate bands between you. So care will be needed in that scenario. And I have had clients who have been in a relationship for many years and then chosen to get married in their 70s and 80, for example. So another tip for unmarried couples is to consider whether marriage is worthwhile for inheritance tax purposes.

Most assets above the nil rate band, if not passed to a spouse, are subject to inheritance tax at 40% if passed on death. However, if at least 10% of those assets in your estate are passed to a registered charity, there's a reduced rate of inheritance tax, that's 36%. So again, if you are planning to make charitable gifts via your will, it's worth looking into that and making sure that's drafted properly in your will to make that effective.

Just looking. We've had a question, a couple of questions come in. So I'll have a look at those now. If a spouse inherits unused allowance e.g. the nil rate band or 500,000, including the residence band, is that in place for life or does it expire?

So it's typically in place for life. There are complications on remarriages and things like that. But if the spouse dies and hasn't used their nil rate band or main residence and rate band, that will pass to their spouse at that point, and there's no time limit on that. It just depends on future relationships. And you can't end up having lots of nil rate band in the future.

For residents nil rate band you said up to £175,000 each. Is that to each descendant, e.g. each child? So that's in total the residence nil rate band is £175,000 per deceased. So when you pass it on it will be in total rather than per child. And please could you define what a residence nil rate band is? So that's a band. So it's £175,000 or up to £175,000 available, where you're passing a main residence to a direct descendant. So that would include children and grandchildren and stepchildren as well.

Is there any difference on inheritance tax if your children are disabled? So not in terms of the way inheritance tax applies, but you can use things like vulnerable trusts to potentially mitigate inheritance tax. And Rory is going to come on and talk a little bit about trusts. But there are specific trusts that you can use for disabled children where their disabilities meet that eligibility.

Does a lasting power of attorney expire on death? Yes, I think the answer is yes, because basically, the lasting power of attorney is for someone to make decisions during your lifetime. So it wouldn't be needed beyond death. It would be beyond death. The assets were passed to the beneficiaries stated in the will or in expressions of wish. So it's more around somebody who is still alive and needs to control their finances, but doesn't necessarily have the mental capacity to sign or make those arrangements, so they need somebody else to do that for them.

What impact did Brexit have on inheritance tax when you'd like to give your inheritance to someone in the EU? So I don't think Brexit had any specific impact. But there are, as I say, complications where you are gifting to somebody who's non-UK or non long-term resident in the UK, whether that's a spouse for example. The other complication is you would need to look at the tax rules in the country of residence for the person that's inheriting that.

So we're talking about tax rules from a UK perspective today, where you do have those international gifts or gifts to people in the rest of in Europe, then you would need to take local tax advice, as well as looking at the UK position.

And is property held in joint names outside inheritance tax when passing to one's unmarried co-owner on death? No. So that is something to be aware of. So when you own property, you can own it as joint tenants or tenants in common, and where you own it as joint tenancies automatically passes to the other person, but there is still an inheritance tax value in that situation.

If you were to work abroad for a period of time and not eligible to pay UK tax, how does that affect the residence nil rate band? So this is the nil rate band-- or sorry the residence nil rate band is around long-term residency positions, so being outside of the UK for temporary periods wouldn't necessarily impact that. But you would need to take tax advice on your long-term residence position.

What about overseas deceased person was in the channel island but beneficiaries UK? So if you say someone's passing from the Channel Islands to a person in the UK, then their estate would be assessed under the rules in the Channel Islands. I can't say for sure what the rules are in the Channel Islands, but in the UK when you pass assets, they attract inheritance tax. They don't usually attract capital gains tax as well as inheritance tax. It's basically breeze based at the point of death a capital gains tax.

And we have plenty of time for questions at the end as well. So I'll just move on to the next slide and do keep those questions coming.

So if we take a look at the inclusion of pension death benefits for inheritance tax from 6 April '27, and draft legislation was published last July, which clarified some of the detail on which death benefits will be included in the assessment for inheritance tax and which won't, as well as how the tax will be collected.

So death in service lump sums will not be included in the assessment for inheritance tax. I think that was a relief to lots of us. Wasn't unclear, it was-- sorry. It was unclear from the April-- sorry the 2024 budget, whether death in service benefits would be included. But the government did clarify that death in service benefits would not be included, and similarly, dependents pensions paid from DB schemes or from joint life annuities purchased in the deceased lifetime.

So for example, if you buy an annuity in retirement, which provides for a 50% or 100% spousal partners pension, then that pension won't be included for the assessment for inheritance tax. Even if you're not married at the time of death.

However, I'm sorry, the other one is the value of payments under guarantee period. So for DB schemes, for example, there might be a five-year guarantee period where the income is paid regardless of your survival. And for annuities, you can add a 5, 10, 15 year guarantee period where the income continues regardless of your survival. So those will be included for inheritance tax from April '27.

And funds paid from a defined contribution scheme before retirement or after starting to take pension income drawdown would also be included for inheritance tax, as will payments made due to those guarantee periods that I just mentioned.

So remembering that assets passed to a spouse or civil partner are exempt from inheritance tax. And that will be the same for pension death benefits, but for non-married couples or people wanting to pass money on to children, for example, care will be needed around those new rules.

So often to date, it's been inheritance tax effective to use nonpension assets before pension assets in retirement and where you're expecting to have money left over. But that won't necessarily be the case or certainly won't be as clear cut from April 2027. It may also be necessary to consider the tax rate of the intended beneficiary for some of those benefits, because there will be scenarios where both inheritance tax and income tax could apply at the beneficiary's marginal rate.

So looking at that income tax position currently, most pension death benefits are paid tax free to beneficiaries on death before age 75, so no income tax to pay from April '27. Obviously, there would be an inheritance tax assessment where we're relevant for that type of benefit.

But even on the income tax, there are some exceptions, such as the scheme paid to a dependent-- scheme pension paid to a dependent from a defined benefit scheme, for example. There's also what's known as a lump sum and death benefit allowance, which was introduced in April 2024 to replace the previous lifetime allowance rules.

So if lump sum death benefits exceed the lump sum and death benefit allowance, which is set at 1.0731 million for most people, income tax will apply to the excess if paid as a lump sum. And that covers both death in service benefits paid pre registered life insurance arrangements and pension death benefits.

So if you were to look at the total of your death in service lump sum pay for life assurance. And we're going to pay DC benefits as a lump sum. You need to look at those together to see what the total value might be.

Now, usually death and service lump sums are automatically paid as a lump sum and there's no flexibility around that. But if you expect the value of your death and service lump sum to exceed that 1.0731 million, there is an option to ask to be insured under what's known as an accepted group life assurance arrangement.

And that means those benefits aren't assessed against the lump sum and death benefit allowance. However, there will potentially be income tax on the premiums if you flex up to increase your life cover to more than the core eight times salary benefit. So some careful consideration needed, whether that is the right thing to do for you or not.

In terms of pension death benefits, there's often flexibility for named beneficiaries to take pension death benefits as a lump sum or as income via dependents annuity or income drawdown. So that is important on death before age 75, where the benefits might exceed the lump sum allowance. And so if you've nominated somebody in your expression of wish for those benefits. They'll usually have the flexibility to take that money as income. And then they wouldn't have to pay income tax on death before age 75.

And when pension death benefits are included in the assessment for inheritance tax from April '27, the death legislation suggests that inheritance tax will apply first, and then you would pay income tax as a beneficiary on the net amount paid out to you, where income tax also applies.

So you can see in the table on the right bottom there that there's some quite hefty effective overall tax rates for pension death benefits still remaining beyond age 75, where both income tax and inheritance tax is potentially payable, so potentially needing to review those strategies for taking income in retirement and things like lifetime gifts.

So I'll hand over to Rory to talk through some of those opportunities in just a moment. I'm just going to have a quick look, a few more questions that have come in.

Is the marginal rate of income tax on the beneficiary rate at the date of death or date of the payment of the benefits? So this is the beneficiary. So it's when they take the benefits out. So if the lump sums paid it'll be their tax rate in that tax year. If somebody takes a gradual income then it will be their income tax rate each year as those benefits are withdrawn.

In our work, we've listed power of attorney to our sisters who reside in two separate countries in the Asia. If anything happened to us, so they can manage both our children and property. Would you advise looking for advice on this matter in the UK or also in each country where they reside?

So power of attorney, I think perhaps you're thinking of legal guardianship there. So if you in your will, that's what happens in the event of death. And then powers of attorney is a separate document. So where you have got people overseas, it's perhaps worth just checking that those documents work as intended in both countries.

Are owned assets like cars, TVs, clothes, et cetera included in inheritance tax calculations? Yes. So things like cars would be included, I guess things like clothes, TVs likely to be lower value potentially. But in theory, all those personal assets are included.

Let's move on then to look at some lifetime gifting opportunities. And we can come back and just review the rest of the questions at the end.

RORY STUART: Thank you, Helen.

So when we talk about inheritance tax planning, two of the most effective tools available are that of lifetime gifting and use of trust. Both are well established, HMRC recognised planning strategies, they both work in very different ways and suit very different circumstances as well.

Gifting is often the simplest starting point from our perspective. It focuses on obviously moving the value out of an individual's estate during your lifetime using a combination of exemptions, long-term planning, and in some cases in insurance to manage that risk as well. Done properly, gifting can significantly reduce the value of an estate and eventual inheritance tax liability, whilst allowing families to see the benefit of the wealth sooner to.

Trust on the other hand, a less about pure tax reduction and more about control, protection and flexibility. So they play, they can play a really valuable part and role where individuals want to manage how and when assets are passed on to protect beneficiaries or deal with more complex family and financial situations.

So throughout this section, I'll summarise on how these tools work when they're appropriate and the trade-offs involved. I'll just reiterate here there's no single best solution. Effective IST planning usually involves using a combination of different strategies over time, and that will change. But by supported by regular reviews and clear documentation, you can effectively manage a lot of the assets outside of the estate.

You probably have quite a significant questions because of the complexities of some of the subjects that we're going to cover off. We may not be able to answer them all today, but we'll try our best to get back to you after the webinar.

The first one, where we talk about gifting is effectively potentially exempt transfers. Now, these are effectively a potentially exempt transfer, better known as a PET. It's a gift made to another individual whilst you're living during your lifetime. There's no IST at the time of the gift. There's no limitations on the amount of the gift. So if you wanted to gift £1 million to somebody, you can do so.

It becomes fully exempt after seven years from the date of the gift. So should you survive those seven years, that gift is then excluded from the value of your estate. If death occurs within the seven years, the gift becomes chargeable and uses the nil rate band first. And I'll come on to that with a separate effective example shortly. And why that's important.

Taper relief may reduce the tax on the gift, but it doesn't reduce the value of the gift in its own right, i.e. in the first three years, inheritance taxes payable at 40% three to four years it drops to 32% four to five, 24%, five to six 16%, and then six to seven, 8% on the seventh anniversary, it drops to 0.

Now, some of the key financial planning points that we talk about when making PETs and where they're most effective generally for younger, healthier individuals where we know there's a good expectation you're going to live seven years or longer, and individuals with surplus capital, those who have got the affordability to effectively distribute assets now and it not affect their financial security in the future.

As I said before, order of gifts matter and it's very, very important. Earlier gifts benefit more from the taper relief than that of later. Some of the common pitfalls we come across with PETs is forgetting to keep records. Well, that's the date, the amount and the recipient. And assuming a taper relief reduces the gift value. It doesn't just reduces the tax that's on the gift value.

Gifting assets, again, with large capital gains tax implications without advice is one of the common pitfalls we come across, i.e. if somebody's gifting a second home to somebody, they will still have to pay capital gains tax on that effective gift.

Now, one of the examples I like to give is that if an individual, not married individual, has got two children. They decide to gift each of the children £325,000. And we name the children, say Sarah and Alice. Sarah receives hers one day earlier than Alice's and the donor dies a year later, and no previous gifts were made before these.

As a result of that, the gift to Sarah is free of inheritance tax as it uses up the nil rate band first, whereas the Alice's gift is liable to inheritance tax at 40% resulting in a potential £130,000 tax bill, and those tax bills, effectively, unless otherwise stated or directed in a will, is to be paid by the recipient, not the estate. And that's a really important point there. And that's why I said before about forgetting to keep records, date, amount, recipient. It's vitally important that you do so.

In practice, most wills will directly state to pick up the tax bill, but it is a choice and it's not a rule. So where you have family divisions or complex family arrangements, it's imperative advice is sought, whether that be through a financial planner or also a solicitor at the time. You can also effectively insure against this risk too, so you can insure against that gift you've made. And I'll come on to that just slightly later.

In addition to PETs, we've got annual gifting exemptions. They're the most commonly known one that a lot of people talk about is the £3,000 a year gifting allowance. So effectively, every individual, again, has a £3,000 a year gifting allowance. This can be carried forward one year only. So if I haven't utilised one from last year you can carry forward and make a £6,000 gift this year. Again, if you've got a married couple that's potentially a £12,000 you can give in one potential year, if you haven't utilised anything from the previous year.

You've got small gift exemption as well. Now, again, it's not a very common known one this, but £250 per person per tax year. And that's an unlimited number of recipients. It cannot be combined with other exemptions for the same person. So if you've already gifted somebody 3,000 and you decide to utilise this allowance for 250, that's not allowable. However, should one of you on the webinar today feel very generous and decide to gift us all £250 , you can do so free of inheritance tax.

Another one of the gifting allowances we come across quite often wedding and civil partnership gifts. Parents are allowed to gift £5,000 and that's each parent to their children upon their them getting married. Grandparents that's £2,500 , and anyone else is £1,000. So it could be an aunt or uncle, a brother or sister.

Really importantly, the gift must be made before the ceremony takes place. So if someone's decided to elope and then come back to the UK to have a wedding party or something of that nature, and you decide to gift it to them then, after they've been married, that gift will not be exempt from inheritance tax purposes.

Some of the other exemptions we come across regards to gifting gifts to UK charities fully the exempt. Gifts to political parties are also exempt, and gifts between spouses and civil partners, they're also exempt as long as they're both UK domiciled.

From a planning perspective, why are these gifting allowances, why do we use them? Well they are simple, they're low risk, they're easy to explain, their best used when you're consistently each year and not just one. And often they're underused, because people a lot of people feel that they're too small. But over time, they do compound.

Some of the pitfalls that we come across when people are trying to utilise these is missing the carry forward deadline, not keeping up-to-date records on no paperwork so HMRC could challenge it again in the future, or assuming it's cash only. Exemptions don't have to apply just to cash. It could be assets too, so if you've got a significant shareholding and you wish to effectively gift some of those shares over to a child or individual, you can do so as well.

The third thing I'm going to talk about here again, has probably had a lot more press notice over the last 6 to 12 months. Is regular gifts normal income. So again, you can effectively gift out of normal income. It's really powerful thing, because it's immediately exempt. And there's no seven year clock. It's an unlimited in value. One of the most effective IST planning tools that we effectively use.

Now, the key conditions to this though, is the gifts are made from taxable income and not capital. When we say taxable income, property income is not included in that. So it has to be effectively taxed via PAYE, whether that be dividends or interest as well. The gifts have got to be regular and habitual as well. So we've got to see a pattern for these. It can't just be fluctuating significantly year on year.

And also the donor, the person giving the gift has to retain enough income to maintain their usual standard of living, and that is a really important point. Now, there is something called an IHT 403 form, and effectively that's the form you submit upon death that can prove effective gifts out of surplus income. And what that does is does an income and expenditure analysis and how much surplus an individual had that year, where did it go to, who did it go to, and when did it go to really important points.

These can be used for a variety of things, whether it be monthly payments to kids, paying grandkids school fees, regular ISA contributions, pension contributions to family members maybe. As I said before HMRC, what they look at is that clear pattern of gifting. So standing orders help more so than anything, rather than just making ad hoc ones, having it as a regular thing.

Really important point as I mentioned before, you can't go dipping into capital if you're gifting out surplus income, i.e. if you've gifted £20,000 of your surplus income to your kids for a particular year, and then you use your capital to pay for £20,000 holiday. That gift out surplus income would fail from HMRC perspective.

Documentation is critical with all these and I'll keep reiterating that point keeping annual gifting schedule if you're going to utilise this income expenditure analysis is absolutely key and also bank statements as well, showing the regularity and also proving that income and expenditure summary.

We generally use it for again, high-income clients who are asset and income rich. They often work alongside pension income or surplus dividends. It's an excellent alternative from my perspective, rather than the one off gifts, it can be utilised as a obviously on a regular basis. It's generally not suitable for irregular ad hoc gifts or using savings and calling it income for instance. That's just not allowable.

The next point I'm going to talk about is trusts. And then also the one after that would be family investment companies. But I'll start on trusts.

And why do we use trust? Like it's a control over assets. It's there to a lot of times to protect the beneficiaries. So it could be if you've got children or grandchildren potentially, and they may be exposed to divorce or bankruptcy or their general spendthrifts, effectively moving assets into a trust could be a solution for you. It provides what we call structured succession planning. So it ensures that effectively that the money can retain in the family name and the estate over the long term.

There's three typical trusts that we use from a financial planning perspective. Bare trust is often used for minors. The legal owners from day one of a bare trust is that of the beneficiaries named in the trust. It's very transparent. No limitations in regards to how much you can effectively put into a bare trust. And there's no, so again, you wanted to put £1 million in there, it would be deemed as a potentially exempt transfer. So there's no limitations with regards to nil rate band.

We then got discretionary trusts. These provide a significant amount of flexibility and asset protection. So discretionary trusts the beneficiaries. Although they can be named as an expression of wishes, it's still up to the trustees on who effectively benefits from that trust at any given time, and that can change.

As a result of that, ultimately, if you've got again, children, grandkids, or anything going through divorce, they're not legally entitled or owner of that trust, although there could be a potential future beneficiary, that trust is outside the estate then for divorce purposes. Whereas a bare trust wouldn't be.

The other one after effectively discretionary. So one thing with discretionary trusts and I'll talk to you about potentially exempt transfers and chargeable lifetime transfers shortly. But the other alternative that would be loans and gift trusts or gift and loan trusts. And effectively this is where you loan a proportion of money. It could be say, half a million into a gift and loan trust. You still retain a right to utilise that capital at any given point in the future. That's not outside of your estate, the original capital is not.

However, the not for seven years, that is. And then ultimately, all the growth that accumulates within the gift and loan trust will be outside of the estate immediately. So should that do particularly well and then say 2, £300,000 growth that's outside of the estate, you still retain a right and access to that capital. That capital does not leave your estate for inheritance tax purposes until you've utilised it. So if you put half a million in there, regardless of timing wise, and it's still half a million pounds, effectively loan that owes you, that will still form part of your estate in the future.

Now, big considerations with regards to IHT when we're utilising trusts, transfers into most trusts are chargeable lifetime transfers. So where we talked about potentially exempt transfers earlier, if you're making substantial ones into a discretionary trust and it's above your nil rate band, there's an immediate tax charge of 20% on there. So i.e. if you wanted to put half a million in a trust, it could be an immediate tax charge on there of £35,000.

In addition to that, there's subject to a 10-year anniversary charges and exit charges as well. And in addition to that, you've also got trust registration side of things.

And somebody mentioned before about in regards to disability trusts. Disability trusts slightly differ from some of these rules. So there are some slight benefits to it, not from an IHT perspective, but they don't have the 10-year anniversary charges, exit charges as long as they're established correctly.

So when does a trust make sense? It's when control is more important than tax and when you've got complex financial situations. So it might be you want to release some money to certain individuals or beneficiaries at a specific time in the future, or you're not too sure when they're going to be ready potentially to receive some money. It could be business or asset protection as well.

Alternative to that, we've got family investment companies. Family investment company effectively it's a private company that's created a limited company. It's used to purposely hold investments. Parents will typically retain control of the shares. And then effectively you will have different share classes for each of those individuals.

You tend to find there growth shares are gifted to children or family members. We generally find they're pretty popular because their control is retained by the founders. The growth is outside the estate and there's some flexible income planning. They can do with that as well.

Corporation tax is often lower than the personal tax rates as well. From an IHT perspective, the shares can be gifted as potentially exempt transfers. As I alluded to earlier, it doesn't have to always be cash. So we can move things like shares as well outside of the estate.

The future growth sits outside the estate after seven years, and discounts may apply for minority shareholdings as well. It still allows effectively a lot of strong control. Succession planning is built in, and it's usually useful for I'd say, for larger estates, typically £2 million plus, because there are effectively some pretty sometimes a high set up and ongoing costs of these accounting because again, it's like a normal typical limited company. You to do annual accounts every year. And there's a bit of administrative burden on there as well. So generally don't find those suitable for the smaller estates.

You'll see in the banner on the below highlighted gifts with reservation. This is-- most common we come across with a gift with reservation is it's OK. We've put our house in trust. So whilst you retain a benefit of using an asset, an asset is still regarded in being in your estate.

So even if you put your main home or even a second home, and you put it into trust. Unless you pay market rent for the use of that asset for the period of time you reside there or stay there, may it be a second home. You go on holiday there four times, four times, four weeks a year. Unless you're paying market rent for those four weeks, the asset will not be exempt from inheritance tax regardless of when it was, the asset was gifted.

So if somebody's gifted their home outside into a trust 15 years ago and you've not been paying any market rent for that still forms part of your estate, you are still effectively utilising and benefiting from that asset. And it's one of the common pitfalls we do come across.

On to the next slide, Helen. Again, what we've seen of late, we've seen some quite prominent news stories in regards to that of business relief and agricultural relief, particularly because the government have made some significant changes to this of late. And there's some proposed changes.

The proposed changes I'll go through now, and they'll be coming in from April this year. But what is business relief. Business relief effectively reduces the value of qualifying business assets for inheritance tax. So you can get relief at two specific levels. So you can get 100% relief on trading businesses. So if you own shares in some unquoted company shares, sole traders or partnerships, and they're a trading business, they could be fully exempt up to £2.5 million.

Certain other business assets i.e. if it's land or buildings that are used by the business but owned personally, they could have an exemption of 50% inheritance tax as well. Really important to seek advice there and seek legal advice when valuing these type of assets.

There's some key conditions with regards to business relief. The assets have got to be trading and not mainly investment, i.e. if you've got some unquoted company shares and you've got £1 million of assets in of which 800,000 of that is buy to let residential and then 200,000 of it is a small operating trading business, the likelihood is HMRC will regard that as an investment business, not a trading one.

You've got to own the asset, you've got to have owned the assets for two years before death or gift and relief applies on death and on lifetime transfers as well. It can effectively reduce inheritance tax to nil on those qualifying assets. As I said before, it's £2.5 million you can hold in these type of assets and it'll be exempt of inheritance tax.

It's generally often combined with succession planning. There are what we say is the associated risks of this. It's high risk, high reward. So unless you effectively own those company shares yourself, there are alternative investment providers out there who can effectively provide this service for individuals. But we do regard that as quite high risk.

Some of the common pitfalls that we come across with business relief is generally it can be investment heavy businesses fail the test, which I alluded to before. HMRC scrutiny is increasing on this as well, and relief can be lost if the business activity changes, i.e. if it does go from a trading business to an investment one, you could lose that relief.

Business relief and agricultural relief, as I said before, they're now combined. So we've got 2.5 million allowance. That allowance is transferable now. So it never used to be. It used to be 1 million and it wasn't transferable.

So if you've got a family business that's now valued at £5 million , you've got husband and wife you can effectively upon first death, transfer those business assets to spouse, or whether that be husband or wife, they can retain then a £5 million business relief allowance, which is quite significant from previous or the current regime as well. So that's from the 6 of April this year.

What I would say is, if you've got anything in regards to agricultural relief or business relief, is to always have it effectively, professionally looked at. So whether that be an accountant or a solicitor, it's just to make sure that the exemptions apply and that i.e. for farmland et. Cetera, that's owner occupied or it's farmed by the family, or if it's tenanted again, is it tenanted in the correct way that you'll qualify for agricultural relief as well. On to the next slide, Helen.

So one thing is that if gifts are not appropriate and you don't want to be setting up trusts or anything of that nature, one of the most straightforward form of inheritance tax planning is that of insuring against it. If you've got a liability on your estate effectively, you can effectively buy a whole of life cover. It's is designed to meet the inheritance tax liability on estate. You want to write it into trust. That way, the proceeds sit outside of the estate upon death, and the funds are there readily available to the executors or beneficiaries to pay that inheritance tax bill.

So why does it work? Well, it generally works where we IHT is a certainty on estate and it's not likely to change, and then we can effectively match that hole of life to that certainty. There's no investment risk on that and it can preserve family assets. So if you do have properties or businesses that you want to pass down to the next generation without avoiding for sales, have an insurance in place can actually be a solution for you as well.

Some key planning points that we effectively address when we look at this, we look at the sum assured is really important, is that reviewed alongside estate growth. So if we can assume that your estate is going to grow and it's really important if you're setting up a whole of life plan is to make sure inflationary increases are incorporated within that. Otherwise, ultimately, you'll find that inflation takes its course and there'll still be inheritance tax liability at the end.

Premium affordability is critical. So the policies are there for the long term. So when setting up any form of inheritance tax planning, whether that be gifting or whether that be trusts or whole of life, effectively demonstrated long term affordability of those recommendations or actions is vital. It's generally suited to that of older clients with no ill health issues on and estates that have got predictable IHT exposure.

Common pitfalls that we come across. It was one of the questions somebody actually asked earlier, is what happens if a life insurance policy gets paid into the estate and it's not in trust? Well, it falls into the value of the estate for inheritance tax purposes. So unless you're putting these life insurance plans into trust, then ultimately, what it does is it inflates the value of the estate, which ultimately causes more inheritance tax.

One of the other common pitfalls we come across is where premiums become unaffordable later in life. So again, demonstrating cash flow modeling, making sure that income sustainability with expenditure again, that's vital long term. One of the other ones we come across is over insurance, is with that review and all the other planning options, is people effectively over insuring themselves as well. Again, sometimes it's not necessary.

One of the protections that we do put in place is for gifts, and particularly if you're making large gifts. If we go back to the Sarah analysis example, where I said we're going to gift two children 325,000 each. Well we know within seven years, should you pass away, proportion of that for the kids is going to be exposed to inheritance tax.

So you can actually set up something called a gift inter vivos plan. And that is effectively a seven-year term assurance that utilises, that you utilise to pay that inheritance tax that would be due on that gift should you pass away within that seven years. Again, it effectively reduces over a period of time based on the value of that gift.

Generally, why do we use that? Well, again, where we use utilising significant gifts outside of the estates just to ensure that make sure that again, no further assets need to be sold or there's a certain inheritance tax liability on one of the beneficiaries estates where they have to then effectively realise capital or find capital elsewhere to pay that inheritance tax liability.

General planning points for that. Trust choice matters as well. So when you're putting those into trust, what type of trust you as well, it's really important. The valuation also or the gift outset as well as key for inheritance tax as well.

Something we also look at is term assurance for inheritance tax. So if a gift inter vivos plan or whole of life is not appropriate, where you're potentially utilising or going into business relief assets, we know they're going to be exempt after two years. It could be you want a short-term term assurance. So might want to cover that liability.

So if you've just gone along and bought £2 million or £2.5 million million of business assets, you might want effectively just insure against the inheritance/liability for a very short period of time. So you can effectively use term assurance for that as well. So they'll come in handy at any given time. Again, as I mentioned before, pitfalls we find is people not putting those into trust. Generally why it works well, it's cheap. It's targeted. Obviously, it's covers that inheritance tax liability for that very specified short period of time.

What I will say is that obviously everything discussed here in regards to gifting, trusts, business side of things, business asset relief, it is good inheritance tax planning. It's not about avoiding tax at all costs. So it's about effectively keeping things flexible. It's about a level of certainty there, liquidity and fairness for the next generation.

So from my perspective, I think, there's no single solution fits at all. And generally most effective plans use a combination of these at different times of people's lives as well. And I'll reiterate, documentation and regular reviews are just as important as the tax rules themselves. And it's all so inheritance tax planning generally works best when it started early and it's reviewed often. On to you Helen.

HELEN PERRIN: Great. Thank you Rory. Lots to think about and lots of questions coming in. I'm answering some of those. Some of them are verging on the advice side. So we'll make some general comments. But just to reiterate that everything that we comment on or say today is for information only. And often these things come down to the details of specific wording and trusts or your personal circumstances. So it's hard for us to give concrete answers on some of those questions.

But we will share a recording of today's session, and we'll send some useful resource sheets to give you a bit more information. We've also got a couple of options for individual support for those that need it.

So the first is WTW individual guidance service that's available to elect on flex mart, our flexible benefits platform, as an any time event. Guidance delivered by our regulator financial planning team. It's basically a bit of a financial planning MOT. So to attract the tax exemption, it does need to cover an element of retirement planning, because the exemption is for pensions guidance. But as part of that, we can help with estate planning, talking through gifting options and how to document and record those gifts, for example.

And we can talk about the pros and cons of different arrangements, but what we can't do is give you specific regulated advice. So if you want a more detailed personal recommendation or cash flow modeling and things to work out how much you can afford to gift, then you would need to sign up for advice rather than guidance. And Rory will talk you through how to engage with the advice process from atomos in just a moment.

But in terms of the guidance service, the way that works is you elect it on Lexmark. We then ask you to complete a confidential questionnaire so we can better understand your circumstances and objectives. We then book in a video call with you to suit your needs. So suit your-- time to suit you, and we will follow up with a short summary to say, this is what we discussed, and here's are some of the actionable steps you can think about.

As I say, the difference between guidance and regulated advice is that we can't give you a personal recommendation. So for some of those things that we spoke about in terms of whole life assurance and specific investments, qualifying for business property relief, or even that cash flow modeling to say what might work for you and your circumstances. That would be you'd need to move to advice for that.

And the cost of guidance is £500 but it is taxed and deductible. So after tax the costs-- sorry. After tax savings, the cost to you would be somewhere between 265 and £360 depending on your tax position. And that's usually collected over the remaining months of the benefit year. So £30 a month is elected in the benefit window, which happened in November, December for WTW. And if you elected it now it would be collected over 10 months.

If you have any questions on that guidance service, ask them today or there is a dedicated email address and helpline on screen that you can use to find out more before signing off. If you're not sure if that would work for you.

And then the other option, as I say, is to take some regulated financial advice where they can go that much further in terms of the support given and the personal recommendations, and also arrange specific products for you. So Rory is just going to talk you through a little bit about that and how to engage with that process.

RORY STUART: Thank you Helen. Yeah, so if you would like to reach out and receive some financial advice from ourselves, effectively scan that QR code on the screen today or visit that link. What you'll do is you'll be directed then to booking a time. And then effectively, one of my colleagues will contact you then to determine what your advice requirements are, whether that be inheritance tax planning, could be some retirement planning portfolio management.

We do provide a holistic financial planning service. And as I mentioned earlier, as in regards to demonstrating long-term affordability of recommendations, we use that through the use of cash flow modeling. So effectively, the actions that you're taking now or the advice actions, we can effectively demonstrate that long term affordability and how it could be useful for you and actually which option would be the most suited for you as an individual. So please do reach out to us or even to myself directly as well, if you can.

HELEN PERRIN: Great. Thanks Rory. And we'll just go back to some of those questions that I haven't yet got around to answering. So Rory mentioned a gift out of surplus income form to help calculate what value can be managed through this. I think you mentioned a form number. Could you say it again?

So that was IHT form 403. That will be included as a link in the useful resources follow up for anyone who wants to take a look at that. So that basically shows you what your personal representatives would need to share with HMRC in the event of death. So it's a good guide to knowing what records to keep and in what format that might work.

And there's a question from who is a senior employee per the website? So I think that's referring to the QR code for the advice service from atomos, which talks about senior employees and executives. And I think the intention there is advice has a cost. So it's trying to say when it might be useful to take advice versus using the useful resources and going for guidance. So there's no clear definition of who a senior employee is. It's more around do you have an advice need where you need to pay for regulator advice basically.

Does WTW have a discounted preferred will writing service? There is a will writing service on Benefits Hub that you can take a look at. I don't believe there's any specific discounts. The other option is both WTW and atomos work with some solicitors, some of whom do offer some discounts for more complicated arrangements. If you're putting in trusts and things like that, they're typically charged their standard rates for wills, but happy to have a chat or speak to atomos to get a recommendation for a will writer.

There's a question here around gifting. So main home has been gifted and paying the market rent to avoid that gift reservation. Second home worth 1.5 million. What are the ways to reduce inheritance tax? So I mean again, you could gift it and pay the market rent or use some of those options that Rory mentioned, perhaps to ensure the tax. If you don't want to gift that, if you don't want to be paying market rents on two properties, then you can consider some of those other options or gifting other assets to reduce your estate that way.

I think, so I'm just going to answer a couple in the chat as well. I think that's answered most of the questions. I think some of the other questions were similar to some that are on there, so hopefully you can find your answers on there. But as I say, if you do have questions after today, you can book in for guidance or an introduction session for advice to see if that's right for you.

I'm just quickly going to signpost a couple of webinars coming up in the next couple of months. So we've got our preparing for Parenthood session on 11th of March. Looking at how your personal financial planning may change once you have children in terms of protection, needs, and budgeting for a family, making use of the state options available for things like child benefit, tax free childcare, and how to keep an eye on those longer term needs as well as the immediate priorities.

We've then got a separate session on the 16th of April looking at paying or preparing for later life care costs. So just looking at how much those costs might be and options for funding those either planning ahead or perhaps ensuring longevity of care home costs for elderly relatives, something potentially. So if that's of interest to you, come along to those sessions. We will share a PDF of the slides after today, so you can get those registration links and register for those as you wish.

Thank you very much for the high levels of engagement today. It's been great. All questions coming through. We hope you found it useful. Do need to share our limitations of reliance to, again, confirm that anything that we have said today, either verbally or in the posts, is for information only, and we can't give you specific advice without fully understanding your circumstances and objectives and similar caveats there from atomos.

On behalf of Rory, we've got a couple of minutes left, so we'll just go back to the questions and see if we can answer some of those for you. But other than, well, those of you who need to log off, thank you again for joining and have a great rest of the day.

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