By Joshua Saul – The Pure Gold Company
It can seem a morbid topic but an important one when you have spent a lifetime earning, saving and investing. You want to be sure that after years of hard work your accumulated wealth is distributed to the right people in its entirety. It’s essential to consider who will receive your legacy, what they will get and how to prudently manage it so it doesn’t get subsumed by taxes. And while it’s important to leave money for future generations, it’s equally important to enjoy the one life you have and spend at least some of that hard-earned wealth.
Everyone should make a will and ensure it is updated to reflect the intention of the person writing it otherwise it can be challenged. Circumstances change, if there have been life events like births, deaths and marriages, a will may need to be reviewed or changed. That said, a will can be contested, which will inevitably require legal recourse which can eat into the inheritance itself. Similarly, if someone dies intestate or without a will, the legal rules on who will inherit may be contested.
Contested wills or probate have seen some alarming spikes in the last decade. During 2015, there were 164 contested probate cases that came to court according to the Ministry of Justice statistics. The main beneficiaries of these disputes are the legal teams instructed to represent the cases, while those who should have benefited from a legacy lose out. It’s the responsibility of the person writing the will to ensure it is clear and there can be no confusion about its interpretation
A person who takes out a life insurance policy is ensuring their dependents or spouses are provided for in the event of an untimely death. Putting a life insurance policy into trust will help sidestep inheritance tax by ensuring the policy is paid directly to the beneficiary rather than being put into the deceased person’s estate.
The point about life insurance providers is that policy premiums will increase the older you get to reflect the greater risk of death and therefore a pay-out. But if the premiums become too onerous the older you get, it may not be worth the sacrifices needed to keep them up.
Some people consider life insurance policies as a type of savings plan which, if in trust, will pay out to the beneficiaries without inheritance tax. But if the premiums become ever higher, and people live ever longer, there is the risk they can no longer pay and will get nothing at all if the policy lapses.
Depending on individual circumstances though, some people just don’t need life insurance (no dependents or enough assets to provide for dependents in the event of their death), but if you do, make sure it’s the right policy for you.
The inheritance tax threshold is currently £325,000 and there are provisions for this to increase to £475,000 in 2019/2020 (rising to £500,000 the following year) if you own your home and leave it to your children or grandchildren. Spouses or civil partners can take on any ‘unused’ inheritance tax, so by 2021 couples will be able to leave homes worth up to £1 million to their children or grandchildren.
Your Annual Gift Allowance
Everything above the threshold though is taxed at 40%. If you want to limit the amount of inheritance tax paid, you can give what is called an ‘Inheritance tax gift’ Using your Annual gift allowance £3000 per year can be gifted to a loved one annually which does not form part of your estate if you die. Anything over and above that will be taxed on a sliding scale if you die within the next seven years, but no tax will be payable after those seven years.
The same rule applies for homes given away, if you move out and live for another seven years. If you continue to live in the property after giving it away, you will need to pay rent and bills and it will only be exempt from inheritance tax if you live for the requisite seven years. What to do with inherited money will often depend on the tax consequences of the money left and this is something that has to be future proofed before the inheritance investment is awarded.
Some people choose to take out a funeral plan that will cover the costs of burial when they die. Usually paid in instalments or a lump sum, they are not always the most cost-effective method for paying for your own funeral. The money paid to cover the costs doesn’t incur interest when even a savings account would. Essentially funeral plan contributions are a long-term savings plan that doesn’t pay interest. If the cost of funeral plans increase with inflation then there may well be a shortfall for your loved ones to pay which undermines the reason for utilising the plan in the first place.
A tax-free ISA or other forms of asset that holds its value or appreciates will be just as effective in paying for funeral costs, and there may even be something left over. Some people have chosen to buy physical gold up to the value of what a funeral will cost, as the precious metal has consistently held its value over centuries and whilst inflation increases gold is able to provide an effective hedge thereby ensuring that the full cost of the funeral is covered from the sale of the gold (and given gold’s performance over the last 20 years – hopefully, more left over).
Inheritance Tax Gift Allowance and Gold Investment
Physical gold is a tax-efficient, practical and effective way of transferring wealth to loved ones. It is private, which means that unlike equities, cars or property there is no requirement to register its ownership or a transfer of ownership when it is passed on.
It effectively removes wealth from the banking system where the low rate of interest would erode its value as inflation continues to increase the cost of goods. Instead, your wealth is transferred into a physical and tangible asset which can grow tax-free.
If you are a UK resident and purchase UK gold coins like Gold Britannia coins or Gold Sovereign coins, any capital gains are tax free even when you pass it on as part of your legacy. A generous grandfather who bought 50 one-ounce gold coins in 1975 when the price of each ounce was £25, and left them to their grandchild who sold them for over £1000 each today would incur no capital gains tax. So not only are you able to benefit from flexibility around inheritance tax but you are able to transfer the benefit of tax-free growth down the generations.
Gold is an effective and generous way to distribute some of your wealth while you’re still alive, using your inheritance gift allowance under inheritance tax laws or just buying physical gold presents (jewellery or small coins) when birthdays or Christmas comes around. Spend it and spread it while you still can, and for the rest leave a lasting legacy for your loved ones. Furthermore – when beneficiaries are left with inheritance gifts people often ask, “what is the best thing to do with inherited money?” and if you want to preserve it while earning more than inflation the answer often circles back to investing in gold.
The Pure Gold Company – How we fit in?
The Pure Gold Company offers a curated investment service which means they will discuss clients’ needs to ensure they are offered the right product. Their consultative approach, full certification, storage options and buyback guarantee give investors peace of mind that they have made the right choice for their assets.
Through direct communication with clients, The Pure Gold Company understand who is buying and why (compared with online gold sellers who don’t have the same depth of insight). CEO Josh Saul gleans the underlying motives of his clients and is a thought leader on trends in retail investment in physical gold, the process of buying gold and the ways people choose to manage and maximise their assets and investments.