While solicitors generally charge around £100 to actually write a will, consumers who then appoint their solicitor as the executor of their estate are often unaware that this carries additional and higher costs.

For the average person, appointing an executor to administer their estate will cost, on average, between £3,000 and £9,000, says the OFT, and of the 43% of people who do appoint their will writer as their executor, a quarter claimed they had not been made aware of the likely charges*.

The OFT estimated that by failing to shop around for will writing and executor services costs consumers some £40m per year.

Benefits of a will

A recent poll for Barnardo’s calculated that 58% of UK adults have no will in place, and this rises to 74% of UK couples.

Writing a will is a keystone of efficient inheritance planning, and can help you avoid a hefty Inheritance Tax bill for your children, demanding 40% of the value of parts of your wealth and estate. With some basic Inheritance Tax advice from a qualified financial planner, it is often possible to drastically minimise or avoid Inheritance Tax altogether.

Dying with no will in place is known as ‘dying intestate’, and leaves the duty of administering your estate, not to your family, but to the State, under the ‘rules of intestacy’.

Many people are surprised to hear that their wife or husband may not be entitled to receive everything. Furthermore, an unmarried partner has no automatic right of inheritance whatsoever, unless specific inheritance planning is in place through a will. In other words, the notion of a ‘common law’ partner is nothing more than wishful thinking.

With good Inheritance Tax advice and proactive inheritance planning, a will can not only guarantee that your assets pass to those for whom you intend them, but can also be used for other purposes, e.g. to nominate guardians for your children, should you die before they reach adulthood.

Keeping your will current

Once you have done your inheritance planning, and have a will in place, it is crucial to keep it up to date. Barnardo’s research found that 80% of those with wills had not updated them in 10 years. An out of date will can be as bad as no will at all.

For instance, if you make a will but then marry, that will is no longer valid. If you make a will leaving your wealth to your spouse, but then divorce or separate, they will still benefit from the will when you die. If you then remarry, but forget to update your will, your first spouse will inherit your wealth, leaving your second spouse penniless and possibly homeless as well.

Another interesting point is to use percentages, not finite numbers, when doing your inheritance planning. If you had a house valued at £200,000 and stated that your family should get £175,000 and the remainder go to your local church, that may be all well and good at that time. If however, by the time you die, the value of your home has risen to £300,000, your family now get ‘only’ the same £175,000, and the vicar is laughing all the way to the bank.

*OFT survey of 2000 UK adults, February 2010

Would you like to find out more about inheritance planning and writing a will? Make an online financial advice enquiry or freephone 0800 678 5929 now.

Government plans to raise Inheritance Tax allowances or the ‘nil rate band’ to £1m have been cancelled this week.

The Conservative Party had included as one of its flagship policies an undertaking to raise Inheritance Tax allowances to £1m per person, or £2m if transferred between couples.

As a result of the cancellation, Inheritance Tax allowances will now remain at present levels of £325,000 for an individual, or £650,000 for a couple, for the foreseeable future.

Inheritance Tax is levied at 40% on portions of your wealth or ‘estate’ above your Inheritance Tax allowance.

Your estate consists of the value of your home plus any other properties you may own, cars, valuables, savings, investments, and any life insurance policies you may have that are not written in trust. This total is then reduced by the value of your outstanding mortgage, loans and other debts. If the resulting total exceeds your personal allowances, you then deduct your personal allowance, and the resulting sum is subject to Inheritance Tax.

A simple scenario can show where Inheritance Tax can apply. A widow has a home valued at £300,000, a life insurance policy, not written in trust,  for £200,000, and other investments and savings totalling £100,000. This gives her assets of total value £600,000.

Her debts include £10,000 outstanding on her mortgage and £5,000 in assorted borrowings. Her debts and liabilities are therefore £15,000.

The value of her estate is therefore her assets (£600,000) less liabilities (£15,000), equalling £585,000.

Subtract from that her personal Inheritance Tax allowance of £325,000, giving a remainder of £260,000. This is the sum liable for Inheritance Tax at 40%, leaving her children with a demand from the taxman for an Inheritance Tax bill of £104,000.

With some financial planning and good independent financial advice, however, this Inheritance Tax liability could have been reduced, or eliminated altogether.

As a first step, a financial planner might, for example, have recommended writing the widow’s life insurance cover in trust. This is a simple means of removing her life cover from her estate, thus reducing the value of her estate by £200,000, and leaving her with just £60,000 liable for Inheritance Tax. This step alone would have reduced the value of the Inheritance Tax bill to just £12,000. However, further steps are also possible which would, with the help of a good financial planner, have enabled her to further reduce her exposure to Inheritance Tax.

A new poll for the Barnardo’s, the children’s charity, has this week revealed that while 58% of the general population have no will, almost three-quarters (74%) of cohabiting couples have no will in place.

Barnardo’s indicated that a third of those who had neglected to write a will said they had simply “never got around to it”.

Writing a will is crucial for good inheritance planning. It will ensure a smooth inheritance process for your family. If you have no will in place, you have made no formal plan for dividing up your estate, when you die.

Having no will in place could leave large portions of your wealth subject to inheritance tax, which is paid at 40% on any funds above the tax threshold (currently £325,000 per person or £650,000 for a married couple).

While this tax threshold, or nil rate band, for inheritance tax may sound generous, it is important to remember that it is levied not only on your property, but on your entire estate, which includes payouts from insurance policies, and other savings and investments as well. Consulting a financial adviser for qualifed inheritance tax advice is an important element of inheritance planning, and essential to avoid inheritance tax.

A will can also be used to nominate preferred guardians for children, if they are orphaned before they turn 18.

The Barnardo’s research revealed that 25% of over-55s surveyed believed that all their wealth would pass to their family, even with no will in place. However, if you die without a will, specific rules apply to dividing your wealth, and a surviving spouse is not automatically entitled to inherit everything.

In the case of a married couple in England and Wales, the surviving spouse receives only the first £125,000 from your estate, plus a half of the remainder, with the other half of the remainder passing to the children when they turn 18.

*Source: Barnardo’s survey of 2,221 UK adults, March/April 2010

The new tax year, which began on 6th April 2010, offers a golden opportunity for tax savings. Make use of your brand new tax allowances to fine-tune your financial planning, and minimise tax. Our checklist below highlights some of the main areas you can benefit. If at any point you have any questions, please call one of our friendly advisers on 0800 678 5929 or request financial advice here

ISAs 

The new ISA allowances went live on April 6th, providing for £10,200 in tax-sheltered savings this year (until April 2011). Savings currently sitting in a bank or building society account, and liable for tax on growth, can be put beyond the reach of the taxman by investing them in an ISA right now. If you do not use your ISA allowances, you are probably paying unnecessary tax! ISAs come in two variants, the Cash ISA, which combines the security of a bank account with tax-free savings growth, and the Stocks and Shares ISA, which invests in the stock markets and is therefore more suitable for longer-term savings, over 10 years or more.

Pensions

The start of a new tax year is an ideal time to review your pension savings. Pensions contributions are an excellent way to put money away for your retirement. What other savings option tops up your savings cash with 20% in tax relief, on day one? The taxman will even give relief of 40%, if you are a higher rate taxpayer.  However, you need to have a pension plan, to cash in on the taxman’s generosity here. Time is a crucial factor. If you do not already have a pension set up, it makes sense to do so right away. When saving in a pension, long-term exposure to the stock markets is the key to growing your cash. It really is that first pound, which earns the most for you. Use our online pension planner to check or plan your pension savings now.

Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is a tax on the profit or gain you make when you sell, dispose of, or are compensated for an asset. That asset might be a buy-to-let property, a stocks and shares investment, or gains from an insurance payout when an asset is destroyed. Some assets are exempt from Capital Gains Tax, such as your car, personal possessions disposed of for £6,000 or less, and, usually, your main home. You have a personal Capital Gains Tax (CGT) allowance of £10,100, which can double to £20,200 if you are a couple. Capital Gains Tax (CGT) savings can also be made when you have made a loss on investments, by carrying those losses forward to offset them against profits in the future. Find out more by speaking to one of our advisers on 0800 678 5929.

Venture Capital Trusts (VCTs) & Enterprise Investment Schemes (EISs) 

A Venture Capital Trust  or VCT allows investments of up to £200,000 per year which attract tax relief of 30% on the investment, subject to the amount of tax you pay in that year (i.e. you can only reclaim tax you have already paid). A VCT is a listed company, and you must hold your shares in the VCT for 5 years, in order to retain your 30% tax relief. A Venture Capital Trust (VCT) invests in small and medium-sized UK companies with up to 250 employees, and market capitalisation of up to £15m. These companies are turning more and more to Venture Capital Trusts (VCTs) for finance as banks are not lending freely at present, and as a result the quality of projects in which VCTs are investing has never been higher. This assists forward-thinking and innovative VCT providers such as Octopus to offer VCTs which are planned in such a way that they have meaningfully minimised risk. Enterprise Investment Schemes are similar to VCTs, in that they also offer tax relief , though in this case at 20%. However you only need to keep your investment in an Enterprise Investment Scheme (EIS) for 3 years to keep the tax rebate permanently. 
If you think these options could benefit you, why not speak to us on 0800 678 5929?

Inheritance Tax (IHT)

You can give away gifts worth up to £3,000 in each tax year, and these gifts will be exempt from Inheritance Tax when you die. You can carry forward any unused part of the £3,000 exemption to the following year, but if you don’t use it in that year, the carried-over exemption expires. On wealth that falls liable to Inheritance Tax (IHT), tax is due at 40%. However, with good financial planning, an IHT liability can often be vastly reduced or eliminated altogether.

Don’t leave it until the last minute

All of the above are easy to set up and we have advisers who can help answer any questions you might have. We believe it is best to organise your finances at the start of the tax year, to get the full benefit. If you have any questions, please call us on 0800 678 5929 or make a financial advice enquiry here.

Good news for first time buyers in the budget, as stamp duty ends on all homes valued under £250,000. The other news, however, is a bit of a mixed bag. Here is our roundup of personal finance news and the budget changes, hot out of that little brown briefcase on Downing Street.

Stamp duty: while the new threshold of £250,000 is guaranteed only until March 2012, it may nonetheless revive the first time buyers market. However, given that today’s extremely low interest rates can only rise from here, first time buyers must be mindful that the short-term saving on stamp duty could be absorbed by rising mortgage payments, in the longer term.

 ISA allowances will rise to £10,200 on April 6th.  While this had been as expected, the good news is that the ISA allowances are also guaranteed to rise further each year, in step with inflation.

ISAs come in two variants. Savers can place up to £5,100 in a cash ISA, and the same in a stocks and shares ISA, or alternatively place their whole allowance in the stocks and shares ISA. While cash ISAs offer an attractive combination of tax-free savings and the security of a bank account, returns have been dampened of late due to historically low interest rates.

The stocks and shares ISA carries a slightly higher risk than the cash version, but stock market investments almost always provide better returns than cash over 15 years. This option is therefore ideal for longer-term saving. The stocks and shares ISA is not entirely tax-free, as a 10% tax is taken on dividends within the account, but still offers a worthwhile tax advantage.

Income tax personal allowances for ordinary earners have been frozen at £6,475.  At a time when inflation is running at 3%, this is an effective tax increase.

Inheritance Tax allowances frozen for four years. The Inheritance Tax allowance or ‘nil rate band’ remains at £325,000 for a single (£650,000 for a couple), cancelling promised increases to £350,000 made in the 2007 Finance Act. As inflation hovers at around 3%, the longer term reality is that more and more estates will find themselves drawn into the IHT net, incurring an IHT liability of 40%. 

For IHT purposes, the ‘estate’ consists of the value of the home and other properties, insurances, savings and investments, less debts and liabilities. Use of IHT exemptions and the need for financial advice are both likely to increase. The simple act of setting up life insurance ‘in trust’, for instance, removes the value of insurances from the estate, and this one step alone can be enough to avoid the 40% IHT liability.

Capital Gains Tax or CGT remains at 18% on the disposal of any asset, including shares, sales of businesses and buy-to-let properties.

For high earners, a new tax rate of 50% on earnings over £150,000 and an increase of stamp duty from 4% to 5% on homes over £1m are likely to cause considerable pain. Earners over £100,000 also gradually lose their personal allowance of £6,475, which reduces to zero by the time earnings reach £112,950. One item of consolation for high-earners applies to those who own businesses and are nearing retirement: an increase in entrepreneur’s relief tax from £1m to £2m means that, for retiring business owners selling their businesses, the first £2 million of gains will be taxed at only 10%.

A 1% increase in National Insurance contributions from April 2011 will affect all earning over £20,000, bringing their NI contributions to 12%.

For those making charitable contributions, tax relief on donations to charity will be extended from UK charities to include EU charities as well.

Will you be hit by Inheritance Tax? Check your IHT liability with our Inheritance Tax planner

Ask us about ISAs with a savings enquiry or contact us with a general financial advice enquiry now

Plans for a new National Care Service (NCS) could put two-thirds of UK pensioners under pressure to sell their homes, and the proposals highlight again an urgent need for renewed attention to pensions savings.

The NCS would offer comprehensive care in their own home to elderly people, modelled on the NHS, and residental stays where required.

Other payment options currently being discussed to enable pensioners to avail of the NCS include regular savings plans, and restrospective payment through an inheritance tax of a possible 10% on their estate.

Another proposal would see workers extending their working life beyond the state retirement age (now 65, rising to 68 by 2044), with the state pension payments they would have received feeding into the NCS, to fund their participation in the scheme.

The Conservative Party’s model for funding a new National Care Service would involve pensioners making a payment of £8,000 for residential care in the home, payable on a voluntary basis to join the scheme. 

Pensioners on low incomes and with no savings, however, would receive their healthcare for free.

Research shows that 64% of male pensioner households and 71% of female pensioner households do not have assets totalling £8,000, with the exception of their home. For pensioner couple households, who would be required to raise £16,000 to join the scheme, 63% do not have combined non-housing assets to foot the bill.

Equity release plans could be a solution for pensioners to raise money for the National Care Service. These enable homeowners to access the cash value of their home, while continuing to live there.

However, many pensioners may not have equity in their homes and for them, an investment such as a bond has been suggested as a viable alternative.

The launch of an NCS-style scheme would extend the need for financial planning for retirement, and add considerably to the already-pressing need for pensions advice and savings.

Enquire online now to discuss retirement planning or call 0800 678 5929

Inheritance Tax or IHT is a 40% tax that can be applied to portions of your wealth, when you move to transfer it to your children as an inheritance.

HMRC’s total gains from IHT are expected to total around £2.3bn this tax year (2009/10).

Much of this tax could have been avoided, as IHT is known as the most avoidable tax of all.

Checking your current liability for IHT is a simple calculation based on the total assets in your ‘estate’, less your debts and liabilities.

You can check your IHT liability right now, using our new Inheritance Tax calculator.

The tax allowances for IHT are currently £325,000 for a single and £650,000 for a couple.

This may sound generous, but bear in mind that they apply to your total wealth, as contained in your ‘estate’.

Your estate consists of the value of your home/other properties, cars, valuables, savings, investments, and insurances, minus the value of your outstanding mortgage, loans and other debts.

However, good independent financial advice and a little IHT planning can reduce or eliminate altogether your IHT liability, in just a few steps.

For instance, an insurance policy giving £250,000 of cover could be written ‘in trust’, reducing the value of your estate by that amount, right away. That single step could well be enough to bring your estate’s total worth back within your IHT allowances, so that you avoid tax.

Our advisers are experts in using IHT exemptions and Potentially Exempt Transfers (PETs) to further cut your possible exposure to IHT.

You can check your IHT liability with our IHT calculator, or find out more with an online advice enquiry, or call us now on 0800 678 5929.

Much of the land held by native Americans (formerly known as American Indians) is held in group ownership, a legacy of the days when John Wayne conquered the great plains, and native Americans were not permitted to write a will.

Large parcels of tribal land came from ancestors who handed the land down to their descendants as tenants-in-common.

The result has been chaos, and today it is common for one small parcel of tribal land to have many hundreds of individual owners.

The US government is now striving to consolidate ownership with a programme to enable native Americans to buy from each other, so that the number of owners for each parcel is reduced. The new owners of the larger land parcels would then have the ability to preserve their land bank intact, by passing it on in their will.

Writing a will

Here in Europe, writing a will is equally essential for ensuring an efficient and orderly asset transfer to those precise individuals we wish to nominate as our heirs.

Dying with no will in place is known as ‘dying intestate’, in which situation the government takes over the distribution of your assets under the ‘rules of intestacy’.

By ceding control to the government in this way, your spouse and children may receive only part of what you intended, and if you and your partner are unmarried, your partner is automatically entitled to nothing at all – the notion of a common law wife or husband is a myth.

Making a will under the guidance of your financial adviser can also protect you from Inheritance Tax at 40% on parts of your wealth when you die, and in your will you can also nominate guardians for your children, if they should be orphaned before the age of 18.

There are currently £2.5 trillion in assets earmarked by parents as inheritances for their children and relatives, the insurer announced this week.

This staggering sum is held by two-thirds of over-55s covered by an Aviva survey*, with 58% of those questioned wishing to bequeath assets to their family and 46% mentioning specifically the family home as the principal asset they will leave.

Given that Inheritance Tax applies to all eligible wealth at 40%, you can see why the taxman might be rubbing his hands with glee.

However, any financial adviser worth his salt will tell you that, with a little financial planning, Inheritance Tax is the most avoidable tax of all, and can be minimised or eliminated completely by putting the correct structures in place.

Each person has an Inheritance Tax allowance of £325,000 (double that for a couple to £650,000). Where the value of your wealth exceeds that allowance, it is subject to Inheritance Tax at 40%.

While these ‘nil rate band’ allowances seem generous, they apply to your whole estate.

This consists of your home, other properties, savings and investments, insurance policies, other assets, and cars. Take away the amount of your debts and liabilities upon death, and you have the net value of your estate.

Life insurance in trust

By using a trust you can move assets out of your estate, so that their value does not push your net worth up towards the threshold at which you become liable for Inheritance Tax.

By filling out a simple form when taking out a life policy, you can hold the life insurance in trust so that the cover does not inflate the value of your estate. An added advantage is that the payout from the life insurance policy will not be held back upon your death, but paid quickly and efficiently to your family.

Inheritance Tax exemptions

One tax-savvy way to transfer wealth to your children is by making gifts that are not subject to Inheritance Tax - so-called Inheritance Tax exemptions.

There are various kinds of IHT exemptions, subject of course to the limitations of the Inheritance Tax allowances:

• Spouse exemptions
• Small gift exemptions, of up to £250 to any number of persons in a given year
• Annual exemptions to your children of £3,000 per year
• Wedding exemptions of £5,000 to a child or £2,500 to a grandchild when they marry
• Regular gifts of a ‘reasonable size’ to be classed as part of your normal expenditure – for instance maintenance payments or funds for a child in full-time education

There are also a number of ‘potentially exempt’ gifts, known as potential exempt transfers or PETs.

These are only ‘potentially’ exempt because they are not immediately free of tax. You must survive for 7 years after making the gift, before it becomes tax exempt. In other words, a gift made in 2010 becomes tax-free only if and when you have survived until 2017.

The most common PET is probably the family home, transferred to your children and becoming tax-free 7 years later.

There is one important catch with regard to transferring your home, however. If you continue to benefit from the home, by living there, it is classed as a ‘gift with reservation’ and is still subject to tax.

This can be avoided if you set up an arrangement to pay your children rent at a commercial rate, in which case you are viewed as a tenant.

Source: Aviva online poll of 1,337 UK adults

Are you one of the 33m* people in the UK who could reduce your personal tax bill?

Here are five ways to help you with efficient tax planning.

Move savings into tax efficient ISAs

The Individual Savings Account (ISA) is a tax efficient savings product that comes in two variations, the cash ISA and the stocks and shares ISA. The cash ISA provides an opportunity for totally tax-free savings. In the stocks and shares ISA, a small amount of tax is taken by government but the product is still tax-advantaged. The total you may save into ISAs is currently £7,200 per year (unless you are over 50, in which case it is £10,200). From April 2010, the ISA allowances increase, and everyone may save up to £10,200 per year into their ISAs.

Use your personal tax allowances 

In the case of a couple where one person is a non-taxpayer, you can save on tax by placing savings accounts in the name of the non-taxpayer, who can then receive the interest, up to their personal tax allowance of £6,475 per year, tax-free. 

Plan ahead to avoid Inheritance Tax

You can work now to avoid Inheritance Tax (IHT) later, by passing money to your children in such a way that no IHT liability arises. A person may make a large loan to their child, for instance £100,000 to buy a house, and then write that loan off at up to £3,000 per year (£6,000 for a couple), thus avoiding an IHT liability.

Write your insurance policies in trust

By writing an insurance policy in trust when it is originally set up, you effectively remove that insurance cover from your estate, and thus reduce the value of your estate for IHT purposes. Writing an insurance policy in trust is a simple matter, but is worth doing, when you consider that an insurance policy for £200,000 could be subject to £80,000 in Inheritance Tax! 

Use Salary Sacrifice

A salary sacrifice is an arrangement you make with your employer which can help you cut your income tax bill. With salary sacrifice, you give up a portion of your salary, taking instead a non-cash benefit, such as an employer contribution to your pension fund. Although your cash in hand at the end of the month is less, your pension is boosted and attracts tax relief on the contributions which means that your total remuneration actually increases. 

*Research conducted by Fidelity International, September 2009