Inheritance is a challenging process for everyone, but it doesn’t have to be as taxing as it was for the Roy family in HBO’s series Succession.
Even without a multi-billion-dollar empire at stake, your inheritance can still flare up the same sort of acrimony portrayed in the show, according to Daniel Hough, financial planner at Brewin Dolphin.
In fact, inheritance tax (IHT) doesn’t just affect the super-rich, as highlighted by founder of Wealth Club Alex Davies, who said that “many who would not consider themselves wealthy at all might have to bear a considerable, unexpected burden”.
“Rampant inflation and years of frozen allowances and soaring house prices mean many more families will find themselves hit with a hefty IHT bill, which they might not have envisaged or planned for,” he said.
Below, the two experts share the lessons Logan Roy didn’t learn that will spare your beneficiaries the extra drama in their lives.
Be clear about your intentions
In the show’s latest episode, Logan Roy’s amended will could either be read as a wish that Kendall take over as chief executive of his TV empire, or be ruled out.
“The best initial step you can take is setting out proper instructions that reflect your wishes – this is one of the first things we check and review at every meeting with our clients,” said Hough.
“Keeping an accurate set of records for your family and a separate list of assets filed alongside a copy of your will can also be valuable. These will need to be updated periodically, say roughly every three years, and certainly ahead of any big life changes.”
Keep communication channels open
Money can be a difficult topic to discuss for any family, but being straightforward about it can be helpful.
“This is especially true in cases where there is a specific asset that one child would like to inherit – in the Roys’ case, a job role.
“There needs to be a discussion about how the inheritance can be equalised for the other children, if maintaining parity is important to everyone involved.”
This should avoid anyone feeling aggrieved like Shiv Roy did as her brothers gained, when she hasn’t.
Consider equalising assets
The biggest source of contention in inheritance situations is when one or more parties feel they haven’t received their fair share, according to Hough. It is often a particularly thorny issue if there is one large asset in an estate that is illiquid or not easily split (in the Roy saga – a CEO role).
“One of the simpler ways around this can be to earmark a pension fund for a particular member, or members, of the family. Provided it is passed on within two years of death, it will generally not be liable for IHT.”
“Another option could be to take out a life assurance policy. This will pay out a set amount when you pass away, creating a pot of money that can be earmarked for children who don’t stand to inherit the family home or a similar type of asset.”
Set up a trust
Undoubtedly something that Logan Roy did think about, setting up a discretionary trust is “one of the most effective means of protecting assets and providing flexibility, allowing wealth to be held within this structure until the trustees decide it should be distributed”, said Hough.
“The trust allows assets to be ring-fenced outside of your estate, and provided the initial gift is survived by a period of seven years, it will generally be disregarded for IHT purposes.”
There are some tax implications of putting assets into trusts, which you can discuss with a professional adviser. You should avoid appointing people as trustees who may have a vested interest (for instance Geri and Frank in the show), Hough suggested.
Gift it now
“Broadly speaking, the earlier you start handing assets down, the better,” said Hough.
“You can make direct gifts to your family members during your lifetime – called ‘potentially exempt transfers’.”
Davies noted that every year you can give up to £3,000 away tax-free as your annual exemption, as well as make a wedding gift of up to £5,000 to your child, up to £2,500 to your grandchild and to your spouse or civil partner to be and £1,000 to anyone else. Beyond these allowances, you can pass on as much as you like IHT-free.
So long as you live for at least seven years after giving money away, there will be no IHT to pay.
Use your pension allowance
If you have any pension allowance left, make use of it, said Davies.
Pensions are not usually subject to IHT for those under 75 years old – they can be passed on tax efficiently and, in some cases, even tax-free.
Invest in the Alternative Investment Market (AIM).
ISAs are tax free during your lifetime but when you die, or when your spouse dies if later, they could be subject to 40% IHT. An increasingly popular way of mitigating IHT on an ISA is to invest in the AIM-quoted companies and private companies which qualify for Business Property Relief (BPR).
“When you die, as long as you still own the shares and have done so for at least two years, you should be able to pass them on without a penny due in inheritance tax,” said Davies.
Back smaller British businesses
The Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS) offer “a generous set of tax reliefs”, according to Davies.
SEIS offers up to 50% income tax and capital gains tax reliefs, plus loss relief if the investment doesn’t work out. These investments also qualify for BPR, so could be passed on free of IHT after two years.