How inheritance tax planning could save your clients thousands

Writing a will is one of the most important financial decisions your clients ever make.

As a solicitor, you’ll probably guide hundreds of people through this process, across your career.

When a client is ready to make a will, they’ve thought about the big questions – who gets what, and how much.

But more often than not, they haven’t begun to forward-plan to make sure that pot of money is as big as it can be.

A will is not the end, but the beginning of a journey

A will marks the official ‘end’ and final wishes of one person.

It will also mark the start of a new journey for those they leave behind, and the money they leave to them.

Our joint professions offer expert guidance at both stages of this journey – to the person making the will, and those who will benefit from it in the future. We are both part of that journey.

Talking about inheritance tax from the start

Financial advice and legacy planning can make a big difference to the size of the estate, and the inheritance tax due on it.

“With inheritance tax, there's nothing worse than having executives squabbling on death,” says Rebecca Maxwell-Hyslop, associate partner at Rebecca Maxwell-Hyslop Financial Planning.

“If you're open with your children right from the onset, even 20 years before you die, the family knows how much money there is – and they know your final wishes.”

As legal professionals, you’ll be aware of how inheritance tax is calculated and the various tax-free allowances available.

But inheritance tax is a highly complex area.

Very few people know every rule, exemption, and allowance, or how to use them – unless they’re a qualified financial adviser.

Help your clients leave more of their money to those they love

As a legal professional, you may well be talking to your clients through the future financial and tax implications of a particular legal transaction, such as their inheritance or will. But you cannot advise in these areas.

Under the Solicitors Regulation Authority Standards and Regulations, however, you can refer to a financial adviser if you think it’s in the client’s best interests.

“A lot of the time people don't know what they don't know,” says Rebecca.

“I ask my clients: ‘do you want HMRC to be your favourite child?’ You may have three children, but on your death, the lion’s share of assets may go to the fourth – the taxman.

“Depending on the size of an estate, with careful planning, there are ways to reduce a family’s inheritance tax liability.

"The earlier you start planning, the more options you have.”

They can start making gifts

Anybody can gift up to £3,000 each tax year (the ‘annual exemption’), as well as make any number of small gifts up to £250 per person.

These won’t then be counted in the final reckoning of an estate.

Almost all gifts, however large, and including property, become inheritance tax-exempt if you survive for seven years.

In some larger estates, you can even make a ‘deathbed gift’ to avoid losing the residential nil rate band allowance.

They can add to their pension

If your client is still working, they can put more money into their pension pot.

They might spend it during their retirement, but pensions are also a neat, tax-efficient way to sidestep inheritance tax and pass wealth on a generation.

Most defined contribution pension schemes will fall outside of the estate.

They can set up a trust fund

You may already have clients who are thinking of setting up trust funds as part of their plans for their children.

Trusts are a complex area and require specialist knowledge from both legal and financial advisers, so it’s in a client’s best interests to work together with a solicitor and financial adviser who already know and trust each other professionally.

Solicitors and financial advisers – a two-way partnership

“One of the first questions I ask my clients is, do they have a will? And have they appointed guardians for their children,” says Rebecca.

If not, she may refer them on to her own personal network of solicitors.

“Being able to refer back is really important. I'm certainly a believer in having a two-way relationship with legal professionals.

“We can act as sounding boards for each other and pick each other’s brains, as well as help our clients.”

The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.

Wills and trusts are not regulated by the Financial Conduct Authority.

SJP approved 3/7/2023