Mature woman looking at computer at home
Mature woman looking at computer at home

Is it a good idea to start your inheritance planning in your 40s?

Inheritance planning is a big topic to get to grips with, but experts say it’s wise to start thinking about it early. By Vicky Shaw.

Vicky Shaw
Friday 30 April 2021 09:00

Thinking about what’s going to happen to loved ones after we die isn’t something many of us want to contemplate.

But when it comes to financial matters, planning is key, and it may also bring some comfort to you and your family to know that loved ones will be provided for in line with your wishes.

Inheritances generally are getting bigger and, according to recent research from economic think-tank the Institute for Fiscal Studies (IFS), they’re set to become an increasingly important part of overall household wealth.

Family chatting in the kitchen

It can also be prudent to start thinking about inheritance tax relatively early in life – and some experts suggest your 40s could be a good time to start.

Here are some tips for getting started…

1. Be mindful of inheritance tax

Inheritance tax is a tax on the estate of someone who has died, including their property, possessions and money.

There’s normally no inheritance tax to pay if the value of an estate is below £325,000, or everything above that threshold is left to a spouse, civil partner or charity.

It's something to think about in your 40s, 50s and 60s, as soon as you know your estate value could mean a potential inheritance tax bill for your loved ones

Shona Lowe, 1825

Shona Lowe, private client and corporate director at 1825, a financial planning brand from Standard Life says: “The best time to start inheritance tax planning is long before you think it is necessary.

“It’s something to think about in your 40s, 50s and 60s, as soon as you know your estate value could mean a potential inheritance tax bill for your loved ones.”

2. You could make gifts to loved ones before your death

There’s usually no inheritance tax to pay on small gifts you make out of your normal income. However, Lowe cautions: “If you want to gift larger sums of money or assets, you can make a potentially exempt transfer.

“These can be unlimited in value but do come with a ‘seven-year clock’. This means that if you die within seven years, some or all of the value could still form part of your estate for inheritance tax purposes.”

3. Consider trusts

Lowe explains: “If the loss of control over money once it has been gifted makes you feel unsettled, or you want to make sure people don’t have access to your gift before you think they’re ready to handle it, think about using a trust.

Assets placed in a trust that you can’t benefit from sit outside your estate for inheritance tax purposes, so they can be a valuable part of an inheritance tax planning exercise.

“There are lots of different types of trust that each come with their own tax rules, so it’s best to consult a specialist to ensure you choose the one that best suits your and your beneficiaries’ future needs.”

4. Talk to family members – and do it early

Svenja Keller, head of wealth planning at Killik & Co, says: “Estate planning is a big topic but it shouldn’t be avoided. Whilst it can be difficult to make large gifts or use other planning solutions when the family is still young, it is wise to go through the process of thinking about it early.

“Even if the result of the conversation is concluding you will only do small things now, but plan to do more in the future, at least the family knows where they stand.

“This also helps with the overall family conversation – if you have conversations from an early age, it becomes more normal to talk about these things.”

5. Don’t feel guilty about spending

Keller says: “If the objective is to minimise inheritance tax, spending the money and enjoying life can be a good option.”

People may feel guilty about spending their money rather than passing it on, but Keller says: “Remember it is your money to spend, you’ve worked hard for it. It is also good practice to ensure you have sufficient funds for yourself, now and in the future, before wealth is passed on to next generations.

“The pandemic has made considering this even more important; we found at Killik & Co that half (48%) of UK grandparents have stepped in to financially support their grandchildren during the Covid-19 outbreak, despite being concerned about their own retirement income,” Keller adds.

6. Think about keeping it simple

“Complex solutions aren’t always a bad thing – they do have their place – but be careful what you agree to and to what extent you tie yourself in,” says Keller. “It’s important you understand all your options first, and compare them to each other in terms of costs, complexity and flexibility.”

7. Finally, consider getting advice from somebody suitably qualified

Keller says: “You don’t know what you don’t know, and it is easy to miss or misinterpret a small part of the rules. If in doubt, speak to an adviser. Financial advisers, private client solicitors and tax advisers all have expertise in this field.”

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