It’s really this simple; do nothing, and the Crown decides what to spend 40% of all you’ve left behind. If that’s what you want, love your patriotism, but just make sure that really is what you want
Bill Gates has just told the BBC he’s given away $60 billion of his own money instead of giving it to them. Gordon Ramsay’s doing the same with his decidedly smaller, but still considerable, £160 million. If they’re being straight with us, neither will Meta’s Mark Zuckerberg, Michael Bloomberg or Star Wars’ George Lucas. And though no-one’s really clear how many of them he has, neither will Elon Musk.
Have you guessed what the ‘them’ in all these sentences refers to? I’m talking of course, about the people you helped bring into this tough old world in the first place, your children—and these famously self-made (or nearly self-made: think one or two on this list had a bit of Bank of Mum & Dad help along the way) entrepreneurs say that they think the best legacy they can leave their kids is to help them avoid becoming the idle rich and fend for themselves.
At least a bit. No, who are we to judge their parental strategies; many of us might see some sense in Warren Buffett’s (as ever) sage advice to, “Leave your children enough so they can do anything, but not enough so they can do nothing.”
For those of us without multi- billion-dollar estates, the decision to do precisely what with all you’ve worked so hard to accumulate or build over your decades of working life can be a bit tricky. How much should go to family, charity, or the taxman?
You like to think you’re the pilot of your own ship… But not taking charge of the narrative after you step off the bridge?
The problem is, without a will the government decides for you—rarely an ideal outcome, and as we’ve warned before, nearly 40 million of us will be in that very same situation come the day the final invoice gets paid. In the UK, anything left to a spouse or your equivalent to Battersea Dogs’ Home is tax-free, sure —but beyond that, our lovely old chum inheritance tax (IHT) allows estates to pass on up to £325,000 tax-free (£500,000 for main residences with clawbacks for higher value estates) with any value above this amount taxed at 40%.
Many feared new Labour Chancellor Rachel Reeves would hoik this up to pay for that infamous Black Hole; instead, she seems to have (a matter for debate) gone for farmers, business owners and your pension fund instead. Most unused pension funds and death benefits will be brought within IHT’s scope from 6 April 2027; she also changed the rate of relief on AIM shares from 100 to 50%, making the effective rate of IHT 20% on these assets. For businesses and farms the first £1m is free of IHT, then 20% thereafter.
We don’t want to rerun the Budget briefing nor conduct a tax seminar. I would remind you, though, that IHT is in many important respects a voluntary one you choose to pay, as you can avoid it, and which was famously described by past-Labour Chancellor Roy Jenkins as “a voluntary levy paid by those who distrust their heirs more than they dislike the Inland Revenue”.
What I do want to plant in your mind as a senior high earning executive is that at some point you will want to plan what you want to happen, as opposed to Rachel and her chums. (Or even that joyous and delightful branch of the legal profession, Probate Lawyers.)
Yes, to have any chance at all of money ending up where you want—in your kids’ hands, deserving fallen maidens, or the cancer charity nearest your heart—planning ahead is key. There are essentially six options for you and your estate (the economic valuation of all the investments, assets, and interests of you as an individual):
- Spend it! Enjoy life while you can.
- Gift it Transfers made seven years before death are tax-free.
- Sock it in a Trust Offers control over distribution while reducing IHT exposure.
- Buy a whole of life insurance product Helps cover IHT liabilities.
- Invest in tax-efficient schemes Business Relief-eligible assets have IHT relief after two years although come with risks.
- Do nothing Let them take their 40% off the top of the lot and spend it on £100 million Bat Safety Tunnels.
Joking aside (personally, I’m all for Bats), make sure you do your will, otherwise the Crown decides where your estate goes rather than you.
It’s a bit morbid, sure. But you do owe this one to yourself and maybe even the world
You’re in your 40s or 50s or early 60s (and chances are you’ve got 30 years left anyway). This is not top of mind. I get it… but say you run through a cash flow plan with your IFA and you find out if you are in the happy position of being able to retire tomorrow and KNOW you can spend all you need for the rest of your life and still die with loads of money.
Result— spending on yourself and experiences is great as they bequeath you memories which you can look back on later in life when you are wheelchair bound. By the same token, whatever you don’t want to spend it’s probably best to give it away to either loved ones or causes or institutions.
But this needs some finessing, too. Too much too early and you reduce your children’s or nieces’ and nephews’ motivation to work and do something with their lives. Probably the optimal time is in their early 30s to late twenties when they want to buy a house.
You could postpone answering this question and lock aside (if you have it now) up to that £325,000 into a trust and avoid paying any lifetime gifting tax. The 7-year rule applies. Once it’s in there you can decide what to do with it, who to give it to and when, later and even better, it can’t now be classed as part of your estate. As noted, pensions, which used to do this job, are now part of your estate so these must be spent, and trusts become more important.
You can also gift stuff outright (7-year rule again); you can also make so-called gifts out of normal expenditure, i.e., if you have surplus income you can set up regular gifts and these leave your estate immediately (no 7-year rule).
The point is you have some choices. Many hesitate to spend or gift too soon, but avoiding the conversation can lead to rushed decisions under pressure. Instead, opt for a well-structured plan that makes sense for you, your family, and your vision of your legacy.
To explore your estate planning options, get in touch; this end of the year is just the ideal time for doing so. You know it makes sense… though I do wonder if Bill’s kids think so.
- This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
- Please note that the Financial Conduct Authority (FCA) does not regulate some aspects of cash flow, estate or tax planning or trust advice.
- The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
- The value of investments may go down as well as up and you may get back less than you invest.
