Inheritance tax: How to plan your retirement and avoid IHT

Inheritance tax labelled ‘unfair’ and ‘cruel’ by expert

Make the most of your money by signing up to our newsletter for FREE now

Invalid email

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

Indeed, Tom Aykin, private client director at AHR Private Clients told he is surprised at how many people haven’t even considered putting a will in place.

The first aspect of planning retirement to consider is the nature of the assets that people will be investing in and hope to see grow and fund a comfortable retirement.

Mr Aykin said that he questions the ability of bonds to perform the role they’ve had historically.

He said: “I don’t think bonds are performing the defensive role in portfolios that they have in the past.”

The “defensive” role of assets in a portfolio is to provide a steady and reliable yield. Because of this stability, however, they tend to produce low yields compared to what one might find elsewhere.

Taking about balancing a portfolio with different levels of risk, Mr Aykin added: “Typical portfolios are based on the 60/40 rule where bonds can give a defensive nature with high yields.

READ MORE: DWP addresses why state pensioners cannot claim PIP payments – eligibility explained

Retirement planning

There are many options on the table for people starting to think about planning their retirement (Image: Getty)

“Because of the nature of interest rates and yields they don’t provide this defensive nature, while they’re yielding so little and quite expensive fund managers have to look for alternatives.”

While pension savers in the past have been able to rely on less risky assets to generate their incomes, this option is simply no longer available to people looking for a good rate of return.

People planning their retirement will also naturally want to consider their estate and how they can ensure that as little of it is shaved away by inheritance tax.

On this consideration, there are many options, Mr Aykin pointed out.


PIP: DWP issues ‘rallying call’ for disabled people to shape the benefits system – act now

State Pension warning: Rishi Sunak told triple lock ‘cannot be maintained’

Free today: You can stream movies & TV series through Filmzie with no cost – full details

He stressed that every situation is bespoke and that he would advise different approaches to different people.

“Gifting assets can be a key recommendation to clients – by gifting assets in a bare trust, the beneficiary at age 18 can take these.”

A bare trust simply means that assets put away by a trustee are managed by them for the ultimate benefit of the beneficiary.

They are often used by grandparents who wish to set aside funds for young ones for them to access when they turn 18.

If the trustee survives seven years past the date when assets were put into the bare fund, there will also be tax-benefits.

There are downsides as well as benefits, however, as the trustee ultimately lacks control of the fund when the beneficiary turns 18.

Although they don’t usually depart too much from the trustee’s advice, this is not always the case and the trustee has no recourse when it does happen.

Adding to this, Mr Aykin said: “One service gained a lot of traction is alternative investment market (AIM) where clients hold shares which after two years becomes inheritance tax-free.”

People can invest in AIM-listed shares by owning shares in firms with ‘business property relief’ and it has the clear benefit of becoming inheritance tax-free after two years.

However, he cautions that this is “a more volatile market” where these businesses are on the riskier side of the investment spectrum.


What is the state pension? (Image: Express)

Mr Aykin adds that “the structure of financial planning is crucial” and “when you want to leave x, y and z to your family you may want to begin your retirement by taking income from assets which are the most affected by inheritance tax”.

This will ultimately mean that the assets which are affected least by inheritance tax are the ones left over to be inherited.

Finally, Mr Aykin said: “People going into model portfolios and attracted by low fees but financial planning is crucial.

“This means not just looking at a model portfolio as our advice would change depending on what the client wants and be factored into our investment solution.”

Related post