1. Gifting Money to Your Children

Giving money during your lifetime is a simple way to pass on wealth while cutting down on inheritance tax (IHT). Each year, you can gift up to £3,000 tax-free, and any unused amount can be carried over to the next year. Small gifts of up to £250 per person annually are also tax-free. If you are making larger gifts, they may be exempt from IHT if you live for seven years after giving. Wedding gifts provide another opportunity to transfer wealth tax-free, with parents able to give up to £5,000 when a child gets married, and some other relatives able to give smaller amounts tax free.

2. Using a Family Trust

Trusts can be a great way to protect money for your children and ensure it is used wisely. There are several types of trusts to consider. Bare Trusts allow children full access to the money or assist when they turn 18, while Discretionary Trusts give trustees control over how and when funds are distributed and are a useful way if getting money out of an estate whilst retraining control of how and when the trusts assets can be paid out to your children.  Interest in Possession Trusts provide beneficiaries with income from the trust without access to the original capital. Settlor-Interested Trusts allow the person setting up the trust to benefit from it, though they come with specific tax implications. Trusts can safeguard wealth, reduce inheritance tax liabilities, and help control how children receive their inheritance, preventing mismanagement or misuse.

3. Smart Saving with Junior ISAs and Pensions

Building financial security for your children does not just involve direct gifts or trusts. Junior ISAs allow parents to save up to £9,000 per year in a tax-free account that children can access at 18. Children’s pensions are another overlooked but powerful tool. Parents can contribute up to £2,880 annually, with government top-ups bringing the total to £3,600, setting their children up for long-term financial stability.

4. Make a Will – Don’t Leave It to Chance

A will is essential to ensure your assets go where you intend after you pass away. It allows you to appoint guardians for your young children, ensuring they are cared for by people you trust. You can also include provisions for setting up trusts within your will to manage inheritance for minors. Careful estate planning can also help minimise inheritance tax, making sure more of your wealth benefits your family instead.

Final Thoughts

Planning now means peace of mind later. Whether through gifting, trusts, ISAs, or a will, taking proactive steps today can make a big difference for your children’s future.

A private wealth solicitor can guide you in making the best choices to protect and grow your family’s financial legacy.

Please note that this article does not constitute tax advice, and the best approach will depend on your personal circumstances. It is always recommended to seek professional advice tailored to your situation.

To find out more go to our dedicated Private Wealth webpage or click the contact details below. 

 

In 2018, Prime Minister Theresa May announced that heterosexual couples will be able to enter into civil partnerships, giving them substantial tax benefits. It could open the way for cohabiting siblings to also receive the same treatment, pending a proposed change in the law.

Ms May’s announcement follows a Supreme Court ruling in June this year to allow Rebecca Steinfeld and Charles Keidan to have a civil partnership instead of a marriage. Before this, only same sex couples were allowed such partnerships.

A couple in a civil partnership is entitled to the same beneficial treatment in terms of tax, pensions and inheritance as married couples. The ruling therefore aims to provide greater security for unmarried couples who have formalised their relationships, and for their families.

But some siblings who have been cohabiting for years believe they should have the same rights too.

Sister Act inclusion

Two recent cases have highlighted the issue. Both involve sisters who had lived together for over 30 and 43 years respectively.

In both cases, each sister wanted to leave her estate, including her share of the jointly-owned home, to the other. Both homes, over time, had risen substantially in value. However, on the death of the first sister, her estate will only benefit from the £325,000 tax free allowance and not any of the extra benefits that married couples and civil partnerships now receive including the extra inheritance tax allowance introduced in April 2017 in relation to the family home. This currently allows an extra £125,000 to be passed tax-free to children and grandchildren. Siblings are also excluded from the right to pass assets to each other free of inheritance tax.

This means that, in the case of these cohabiting sisters, there would be substantial extra inheritance tax to pay. In one case, the surviving sister would be forced to sell their home of 23 years.

Both sets of sisters want the law changed to give legal recognition to ‘sibling’ couples who have decided to spend their lives together, in jointly owned homes until parted by death. The Civil Partnership Act bans ‘prohibited degrees of kindred and affinity’, which includes siblings. Lord Lexden has proposed a bill to include siblings in the Act. The bill received its second reading in the House of Lords in July but has yet to reach committee stage.

So a change could be coming soon. But in the meantime, the death of a co-habiting sibling could leave the survivor with the only options of selling up, borrowing money, or using an equity release scheme.

Contact Nicole for more information.