Interactive Investor

Covid-19 triggers spike in will-making - here’s how to gift

10th December 2020 12:15

Laura Miller from interactive investor

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Pandemic encourages more of us to think about our mortality, but passing wealth on now may be the best option.

Coronavirus has led to a surge in the number of people making wills, according to financial planners Old Mill today.

The organisation said many people have also made the decision to leave legacies to charity, and think about lifetime gifts to family and good causes, according to the firm.

Which? Wills found there was a surge in the number of people making wills during the first coronavirus lockdown – an 682% increase in April this year. 

Separate research by the Law Society also found an increase, with 7% of people making or updating their will during the months of the first lockdown, and demand for will-writing services rose 69% in the year to September at mutual financial services firm Co-op.

Neil Rushton, chartered financial planner, at Old Mill said:

“There is no doubt Covid-19 has prompted lots of our clients to start thinking about updating their wills.”

Clients often do not realise they can afford to make lifetime gifts now as a very tax-effective way to pass on wealth, he said.

“We have been talking with an increasing number of clients about their options for passing on wealth to family members now, when they need it, as well as some of the more philanthropic aspirations they may have,” Ruston added.

According to the Institute of Fiscal Studies, many of those in their 30s and early 40s now will be 64 before they inherit their parent’s wealth.

For those who can afford to, passing on wealth now rather than as a legacy may make sense.

“It is obviously much nicer to be able to see your family benefit from the money while you are still alive,” said Rushton, “but also it makes sense to pass it on now when they actually need help, rather than have them inherit when they are retired or nearing retirement themselves”.

Your gifting options

Lifetime gifting

This is an annual gift allowance - you can give up to £3,000 each tax year (6 April to 5 April) without any Inheritance Tax (IHT) implications. If you don’t use the full £3,000, it can be carried forward for one year.

Small gifts exemption 

On top of the annual gift allowances, you can make tax-free payments of up to £250 to any number of people in the same tax year, except anyone who has received all or part of your £3,000 annual exemption limit.

Gifts from normal expenditure out of income 

You can make tax-free gifts out of your income as part of your normal expenditure as long as it is a regular gift, it is out of income and it doesn’t reduce your own standard of living.

Gift Aid donations 

If you make charitable cash donations to registered charities and you’re a taxpayer, the charity can claim an additional 25p for every £1 donated. You can also claim tax relief if you are a higher rate or additional rate taxpayer.

Gift of assets 

If you gift a qualifying asset (e.g. shares or land) to charities, the market value of the asset is deducted from total taxable income making it a very tax-effective way to give.

Legacy gifting

Gifts to charity in your will - by leaving part of your estate to one or more such organisations make it possible to cut the IHT due from 40% to 36%.

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