Why should an Independent Financial Advisor (IFA) help with your will?

February 19, 2016

Writing a will is one of the most important financial decisions you can make. By writing a will, you can determine exactly where all of your money and possessions go when you die.

For some people with simple estates, a will should be relatively straightforward, and can be handled directly by a Solicitor. But for others, a will is just one piece of an estate planning puzzle, and it’s here that working with an Independent Financial Advisor (IFA), as well as a Solicitor, can be of great benefit.

When it comes to settling your estate, planning to use your money in the most tax efficient way, while keeping costs low, can make a huge difference to what you leave behind. Here’s a few ways that working with an IFA can help you plan your estate effectively:

Assessing Inheritance Tax (IHT)

Everyone has a tax-free allowance of £325,000 (February 2016). But, transfers between spouses are exempt from the tax, meaning that if the tax-free allowance isn’t used when the first partner dies, the tax-free allowance is passed to the spouse, doubling it to £650,000.

If your total assets don’t come close to that figure, you won’t have to worry about the tax, but if they surpass it, an IFA can help you assess exactly what your assets are worth, what your potential IHT liability will be, and how it all fits together with your own personal circumstances. And then, they can help prepare your estate in the most tax-efficient way possible.

There’s also a new thing due to be phased in from next year called the ‘residence nil-rate band’. This is available if you leave your main residential property to a direct descendant in your will. The value of the main residence nil-rate band will be based on the net value of the interest in the residential property, after deducting things like a mortgage. The maximum value will start at £100,000 in 2017-18, rising from there. This will be good news for most families as it will reduce the burden of Inheritance Tax by making it easier to pass on the family home without tax charge.

Reducing your tax liability through gifts during your lifetime

Making gifts in your lifetime is a little-known, yet perfectly acceptable way to start passing on some of your estate to your loved ones, without any Inheritance Tax liability.

There’s a few different ways of doing this. The first is that you can give away up to £3,000 a year and it will be immediately exempt from IHT. You can also give as many £250 gifts to different people as you like each year. You can also give unlimited amounts as regular gifts as long as they are made out of your normal income and don’t reduce your standard of living.

Finally, you can pass money on as a wedding gift, with parents able to gift £5,000, grandparents £2,500, and £1,000 for everyone else.

Advising on Potentially Exempt Transfers

While the gifts above are within limits, you can, of course, give away a lot more than that. Let’s say you wanted to buy a property for your children, or give a grandchild money to cover future University fees. These sort of gifts are categorised differently and will still be deemed part of your estate, and therefore subject to IHT, for seven years from the date of the gift.

‘Potentially Exempt Transfers’, as they are known, are a great way of passing on money to your loved ones, but require more consideration because of the duration that they are considered part of your estate. One way around this might be to take out a life insurance policy for the seven year term, which would cover the IHT bill on that particular gift. Another may be to use certain types of trusts to reduce the liability immediately. It’s a complex mechanism, but one that an IFA is there to help you with.

Using Life Insurance as a way of paying Inheritance Tax

If you are expecting a large IHT bill to be applied to your estate when you die, a possible tax-efficient route is to use a Life Insurance policy to put money aside, making it less likely that any other part of your estate, such as your property, will be sold to cover the bill.

It involves several steps, which is where having some expert advice comes in, as you have to set up a ‘whole of life’ insurance policy as well as a trust. When you die, the money is paid into the trust, which may be used to pay some or all of your IHT bill. You’ll need to set these instructions out in a side letter with your policy, so this is a great example of how a Solicitor and IFA can work together to make sure you get exactly what you need.

Trusts have their own Inheritance Tax rules and regulations, which are very complicated, so it’s vital to take some independent advice before setting one up or transferring any of your assets into one.

Giving some of your money to charity

Anything that you leave to a charity isn’t liable for Inheritance Tax, so it’s a good way of reducing your overall tax bill. Perhaps more interesting is the fact that if you leave at least 10 per cent of your net estate to charity, it will reduce your Inheritance Tax rate (above £325,000) from 40 per cent to 36 per cent. An IFA can help you make the most of your charitable gifts, ensuring that both you, your loved ones and the charity are able to use your assets in the most efficient way possible.

There are a variety of ways to reduce Inheritance Tax and plan your estate, but with so many options available, financial advice can help you find the exact approach for your personal circumstances. We’re here to help!


This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

GreenSky Wealth Limited is authorised and regulated by the Financial Conduct Authority. FCA No. 629624. Registered Office as above. Registered in England and Wales, Company No. 07103441. The Financial Conduct Authority does not regulate Will Writing, Tax Advice or Estate Planning.