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5 Estate Preservation Strategies to Consider

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This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham.

The growth in UK-wide property prices has slowed over the last six years, yet overall they still continue to rise. Whilst this is welcome news to many homeowners perhaps looking to sell in the coming years, it also presents challenges for estate planning. In particular, many people are now finding that their property value is starting to creep over the 2019-20 inheritance tax threshold, which levies 40% on the value of your estate exceeding your threshold.

This presents a particular problem for people who are “property rich but cash poor”; i.e. those sitting on a property increasing in value, yet possess few liquid assets which can be organised to mitigate their inheritance tax (IHT) bill. As financial advisers in Grantham, we often get questions from people in this position about what their options are. After all, if your property is your only real asset, then your beneficiaries might well need to sell your home to pay the IHT.

For those looking to preserve as much of their estate as possible for their loved ones, what kind of financial planning can you do ahead of time to be prepared? In this short guide, our Grantham-based team will be sharing five ideas to consider with your financial adviser. If you would like to speak to us directly about this subject, then we invite you to arrange a consultation with one of our team here at Castlegate at our expense:

01476 591022


#1 Leverage the Residence Nil Rate Band

In April 2017, the UK government started to take action over the above “inheritance tax trap”, and introduced the residence nil rate band (RNRB) to try and address it. In 2019-20, this allows individuals to pass on an extra £150,000 to their direct descendants, IHT-free.

In 2020-21, moreover, this RNRB is set to rise to £175,000. So, if you hold most of your estate in your home and are concerned that its value may “tip over” £475,000 (the standard inheritance tax threshold of £325,000 plus the RNRB) in the coming years, then the planned RNRB rise in 2020 could open up some breathing space. The main condition to leverage the RNRB, remember, is that your property must be passed on to direct descendants when you die (i.e. children or grandchildren).


#2 Combine your thresholds

In 2019-20, each person is entitled to their own IHT-free nil rate band (£325,000) and RNRB (£150,000), totalling £475,000. For married couples and civil partners, any unused IHT allowance can be transferred between them when one person in the couple dies. In effect, this “joins” your two estates together, allowing you to “double-up” your IHT thresholds when it comes to passing your joint wealth to children or other beneficiaries when both people have died.

Here is an example. Suppose John and Mary have been married and owned their home for 40 years, and John suddenly dies in 2019-20 without having used any of his IHT allowances. John’s unused £325,000 and £150,000 RNRB pass to Mary, who can now pass on £950,000 to their children if she died in the same tax year.

Please note that this benefit is not available to unmarried couples or cohabiting siblings.


#3 Consider life insurance

A life insurance or life assurance policy will pay out a lump sum if you die and its terms are met. For those with a valuable property but few liquid assets, this could be a vital way to settle a potential IHT bill in the future. Please be careful to seek financial advice if you are considering this option, however. Without careful planning, the lump sum from your insurance policy could also be deemed to be “part of your estate”, and so also taxable upon your death.


#4 Think about trusts

Trusts can sometimes be an important way to “shield” your assets from inheritance tax, including cash and property. Once put in a trust, assets are technically no longer considered to be part of your estate after a set period of time for IHT purposes. Again, it’s crucial to seek financial advice about this. Trusts come in lots of shapes and sizes, with many different rules and tax implications. The trust itself might need to pay IHT, for instance. A good financial adviser here in Grantham will help you to survey the best options here and determine suitability.


#5 Downsizing / equity release

In certain cases, it might be appropriate to consider moving home to a smaller property. For many people, this can be appealing due to lower maintenance commitments as you grow in old age. The sale proceeds can also free-up some much-needed cash, giving you greater flexibility when engaging in financial planning for your estate. Equity release can be another option, which could allow you to continue living in your own home whilst freeing-up a vital lump sum. However, these options come with big financial implications, potentially affecting your lifestyle, future options and the value of your residue estate. Please consult an independent financial adviser if you are thinking about these options.



If you are interested in discussing your own financial plans and inheritance tax concerns with us, please get in touch to arrange a no-commitment financial consultation at our expense:

01476 591022