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Advancing inheritances




Sponsored feature | Owen Byrne, legal director, BDB Pitmans

Owen Byrne, legal director, BDB Pitmans (42294907)
Owen Byrne, legal director, BDB Pitmans (42294907)

I have numerous clients in their retirement who are making the decision to advance an inheritance – providing funds to family members during their lifetime. For those whose own needs are fully funded and have surplus funds, the decision is usually made for two reasons: beneficiaries’ needs and tax planning.

Covid-19 has focussed minds in both respects.

Needs have become more urgent. Financial pressures are more apparent – those clients’ children might be out of work, on furlough or struggling to maintain a business yet have mortgage or school fee commitments. Grandchildren might have finished university and be unable to get a (non-existent) job.

Clients are also wary about tax changes, with an impending Budget and the government having to pay for its Covid-19 support measures. They want to take advantage of the rates and rules in place now.

There are various possibilities. You will want to consider whether to make an outright one-off gift, or give some surplus income away on a regular basis. It might not be suitable to give grandchildren funds outright, so you might consider a trust, providing a pot for different branches of the family but separating control of the assets from benefit. Different possibilities come with different inheritance tax consequences.

There is no cap on the amount of an outright gift and if you survive seven years from making the gift, it generally falls out of account for IHT purposes. Trusts are subject to a different tax regime. You will also need to factor in possible capital gains tax when selling shares, a property or other assets in order to provide cash.

It is important to consider the effect that advancing an inheritance may have on your will. If a significant lifetime gift is given to child A but the will still leaves the estate equally to child A and B, will child B consider they have under inherited? The client needs to make it clear in the will whether the lifetime gift should be brought into account.

With a Budget looming now is the time to consider, if you can afford it, advancing inheritances, seeking specialist advice on the tax and other practical considerations.

Owen Byrne is a legal director at BDB Pitmans in Cambridge, advising on wills and estate planning. Contact owenbyrne@bdbpitmans.com or visit bdbpitmans.com .

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