December 2018

The know zone

  • A shared approach
    Ofsted's promise of a new inspection framework for September 2019 seems to have got everyone talking about the curriculum. Here, ASCL specialists Stephen Rollett and Suzanne O'Farrell share their tips on how leaders can embed curriculum thinking throughout their schools. More
  • Fair play for all
    Teachers teaching the same subjects to sixth formers in schools and colleges get paid different salaries. Kevin Gilmartin examines why and asks, "Is this really fair?" More
  • Avoid the trap
    Managing Director of Lighthouse Financial Advice Ltd Lee Barnard says that there are steps you can take now to avoid getting caught in paying a hefty inheritance tax bill. More
  • Close encounters of the student kind
    Where's the most surprising place that you've bumped into a former student? Here, ASCL members share their stories... More
  • Leaders' surgery
    Hotline advice expressed here, and in calls to us, is made in good faith to our members. Schools and colleges should always take formal HR or legal advice from their indemnified provider before acting. More
  • Let it snow!
    As you spend time over-indulging with your loved ones, spare a thought at this festive time of year for those still hard at work... like the finance and maintenance teams keeping our schools ticking over during the holiday period. More
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Managing Director of Lighthouse Financial Advice Ltd Lee Barnard says that there are steps you can take now to avoid getting caught in paying a hefty inheritance tax bill.

Avoid the trap

Inheritance tax (IHT) changes being phased in already allow you to leave up to £125,000 of the value of your main residence to your direct descendants, and by 2020 this will have risen to £175,000. This is in addition to your IHT allowance, currently £325,000 per person. 

Despite this, even people with a relatively modest home and a few investments are realising that there will be tax to pay on their estate when they die. Any amount above the threshold is taxed at 40%. 

The good news is that it is possible to reduce or even eliminate IHT by using legitimate strategies. You have probably heard of the seven-year rule whereby if you give away an asset it is fully removed from your estate after seven years (unless you pass away before the seven years are up). However, for this to happen you cannot continue to benefit from it. For example, you cannot live in a house you have given away (unless you pay full market rent to the new owner), or take income from an investment. 

Ways of reducing your IHT bill 

Understandably, many people are reluctant to give away much of their wealth, mainly because they need it themselves. You can make the most of the various allowances that allow you to give away certain amounts tax free, but there are ways of removing assets from your estate while retaining control of and access to them, which may include the following: 

  • reducing your capital while maintaining your income 
  • taking out insurance to pay for inheritance tax 
  • using trusts to remove money from your estate 
  • structuring additional pension funds so that they can be passed on 
  • making investments that are exempt from inheritance tax  
  • giving away surplus income 
  • leaving money to charities 

Passing on additional pensions tax efficiently 

Money in additional voluntary contributions (AVCs), additional, or other defined contribution pensions isn’t included in your estate for IHT purposes – you can pass it on free from IHT to whoever and as many people as you wish. It is important that you complete a nomination form telling your pension provider who you want to inherit these funds. 

The fund you pass on still has the potential to grow, with no tax payable on any income or gains within it, and it remains outside beneficiaries’ estates so they, in turn, can pass on the fund to their beneficiaries. 

However, income tax is payable on any money they withdraw from the fund, unless you die before turning 75. In this case, there is no tax payable when money is withdrawn. 

Any benefits your nominees receive from your teachers’ or local government pension are not subject to IHT. 

Professional advice is essential 

Inheritance tax planning is complex and it is important to take professional financial advice. Recommendations should take into account the amount of income you need now and are likely to need in the future, the type and value of your various assets, such as your home, other property, investments, savings, life insurance policies and so forth and your wishes as to who should benefit. 

As ASCL’s premier partner for financial advice, we can help you work out whether there is likely to be tax to pay when you pass away and recommend ways that you may be able to reduce it. The advice we provide is practical, affordable, easy to understand and specific to you. 

Financial Planning for Retirement Seminars 

Come along to these popular seminars run by ASCL and Lighthouse Financial Advice Ltd. They are suitable for headteachers, senior leaders who may be approaching retirement, and those with a responsibility for managing payroll and HR in schools and colleges. Various dates and locations available – book your place online at www.ascl.org.uk/RetirementSeminars2018

Further information

Call 08000 85 85 90 or email appointments@lighthousefa.co.uk to arrange a complimentary, no obligation, initial appointment now.

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