Beginners' Guides

Guide for parents

Preparation for the future - Continued

Protecting their inheritance

Once the kids have flown the nest and are standing on their own two feet, you may want to look at their inheritance.

The first thing to do as soon as possible is to write a will laying down exactly how you want your estate – as your assets become known on death – distributed.

Our Inheritance Tax Guide has more information on will writing plus ways you may be able to reduce the amount of inheritance tax your estate could have to pay.

Many couples choose to leave as much as they can, up to the IHT nil rate threshold, to their children on the first death with the remainder to the survivor. Then the remainder of the estate passes to the children when the second parent dies. This ensures that the nil-rate threshold is utilised as much as possible, not only on the second death but also the first.

You should consider getting professional advice to work out the most tax-efficient way of structuring your will.

Please bear in mind

The current inheritance tax (IHT) nil-rate threshold is £312,000 (in the tax year 2008/09) and if the value of your estate is less than this, no IHT will be payable.

If your estate (plus any non-exempt gifts you make in the seven years before death) is worth more, then your estate will have to pay up to 40% tax on the amount over the threshold. If you want to leave everything to your spouse or civil partner then the full amount is exempt from IHT.

Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

Questions to ask

Things to think about with Inheritance Tax planning

Who do I want to leave my money to when I die?
Will it be split equally between my children?
How much inheritance tax could my estate be liable for?
Do I want to set up a trust within my will so that my partner or spouse can have the income from the assets, but the assets themselves go to my children?

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Helpful notes

If you want to start giving your children lump sums of cash while you’re still alive, these gifts become known as Potentially Exempt Transfers (PETs).

You need to survive for seven years after the gift, for the gift to drop out of the IHT net. If you die between three and seven years there is a sliding scale of tax to pay.

You can find out more in our Inheritance Tax Guide.

You can find out more about trusts here

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