Wealth Check: 'Will inheritance tax ruin my retirement?'</I>

Margaret Wylie, 59, from Stirling, is on the brink of retiring from her job as the deputy head teacher of a primary school. But with less than a year to go until she finishes work, she is more worried about her parents' money than her own: "My parents live in sheltered accommodation with few costs, and I manage their money as best I can," she says.

With a modest pension, no debts, and no mortgage, Margaret's other concern is how to limit the inheritance tax bill for all three generations of her family, including her two grown-up children. "I want to know how to make sure my parents, myself and my husband can enjoy retirement without my children losing any of their inheritance to the taxman," she says.

Three independent financial advisers offered Margaret advice: Keith Churchouse of Churchouse Financial Planning, Ajmer Somal of Positive Solutions, and Martin Bamford of Informed Choice.

Case notes:

Margaret Wylie, 59, deputy head teacher, Stirling

Salary: £40,000

Monthly spending: £1,500 joint total

Pension: £9,680 contributions per year

Debts: £0

Mortgage: £0

Pension

The advisers recommend that Margaret should find out how much she will receive on retirement at age 60. "She will probably receive around £10,000 a year in pension income from her private scheme," says Martin Bamford. "Then she should check her state pension with the Pension Service ( www.thepensionservice.gov.uk) to find out how much she is due to receive." After 20 years of contributions, Margaret's Scottish teachers' pension will also pay her a lump sum of around £29,000, and this must figure in her savings plan in the future, say the advisers.

Inheritance tax (IHT)

With an ageing population, more and more of us will find ourselves in the same situation as Margaret, retiring with dependent parents. "As her parents have very modest expenditure requirements, this is possibly less of an issue than it could be for other people," says Bamford.

Before she does anything else, Margaret should check what her IHT liability and that of her parents will currently be. "Those with assets under £312,000 after April 2008 will not have to pay IHT tax on their estates," Keith Churchouse says, "and if passing your money to your spouse, it can be up to £600,000." When the remaining partner dies, and their remaining assets are passed on, the IHT liability kicks in only after the £600,000.

"If Margaret's parents' estate is worth less than this, they have nothing to worry about," adds Ajmer Somal. "If not they should use their annual exempt gift allowance of £3,000 each."

Savings & investments

With Margaret's pension lump sum due at the end of the year, when she retires, the advisers believe cash investments could be the best option, given her cautious attitude to investing.

The advisers suggest that Margaret and her husband may wish to place £7,000 each into a Maxi Stocks and Shares ISAs next tax year. After April 2008, they can each place a further £7,200 into an ISA.

To find an independent financial adviser in your area, visit www.unbiased.co.uk

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS or email cash@independent.co.uk