What is living inheritance?

Whether you’ve just retired or are simply at the planning stages, organising your financial affairs can be complicated. A recent study has found that many of us are keen to see our money enjoyed by our loved ones when it’s needed – known as living inheritance – rather than waiting to bequeath it in a will.

When and how to do this intelligently is an emotive subject, but here are the basics:

Think about your future first

Before you start thinking about helping your nearest and dearest, making provision for your retirement is the first step.

We are all living longer and ensuring that you have enough to live comfortably is sometimes forgotten. If you’re over 55 years old you can now access all the cash in your pension, or take out a tax-free lump sum thanks to new pension rules introduced last year. Or maybe you’ve downsized from a large family home.  Either way, ensuring you have enough to provide a happy and comfortable retirement in your later years should be your first priority.

Give money as gifts

This is the most common type of living inheritance. If you’re all sorted on your retirement you have a total annual allowance of up to £3000 to give away tax-free. If you want to give a larger sum of money as a gift, then the person you’re gifting to may need to pay the taxman some money if you die within seven years. As well as this you can also give up to £5000 towards a wedding, tax free.

Regular payments

If you have a retirement job, or are in a position to give gifts with regular payments from your income this won’t be subject to inheritance tax. That’s as long as they don’t significantly impact your lifestyle (i.e. you don’t face selling your home to make the payments.)  If making a regular gift is the right option for you, make sure you keep it tax-efficient. Giving through a Lifetime ISA can effectively double your loved ones’ inheritance.

Talk about money

Communication is key. Discuss your finances and plans with your loved ones sooner rather than later. Be honest about all your income, assets and what you can and can’t give while you’re still able. Starting the conversation is usually the hardest part, but once you set out clear goals it’s much easier to make a plan.

Consider financial advice

If your financial affairs are complicated, or you’re not sure what the best options are for you, it might be worth paying for financial advice. Shop around for a good deal, do your own research and be sure to keep an open mind.

If you’re not sure how much money you’ve got in pension pots with previous employers, don’t worry – you’re not alone. The government offers a tracing service for tracking down lost pensions, and it’s completely free.

Risk warning:

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. A stocks and shares Lifetime ISA may not be right for everyone. You must be 18–39 years old to open one. If you need to withdraw the money before you’re 60, and it’s not for the purchase of a first home up to £450,000, or a terminal illness, you’ll pay a 25% government penalty. So you may get back less than you put in. Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension. If you choose to opt out of your workplace pension to pay into a Lifetime ISA, you may lose the benefits of the employer. Tax treatment depends on your individual circumstances and may change in the future. Tax rules subject to individual status and may change. If you are unsure if a Lifetime ISA is the right choice for you, please seek financial advice.