Labour cancels wealth tax plans – how it could affect your portfolio

The Labour Party has ruled out major tax changes were it to win the next general election.

The news will be well-received by those looking to preserve their wealth over the long term, but doesn’t necessarily rule out other methods of making money for the Treasury.

Labour Shadow Chancellor Rachel Reeves has ruled out any new wealth taxes were the party to win power in 2024, when the next general election is due.

Party leader Keir Starmer has also ruled out hikes to income tax if he should be the next Prime Minister.

However, government budgets are extremely tight. With little room for borrowing – as Liz Truss’s controversial mini-Budget in 2022 demonstrated – raising taxes or cutting spending are the only realistic alternatives.

Taxation still looks like the most probable route for any government trying to balance the books. Short of creating miraculous economic growth, this would seem to be the only way forward.

What tax changes could we be in for?

The current government has already done a lot of tax tweaking to bring more cash in, without hiking headline rates.

Chief among these is pinning tax bands and allowances. The effect of this is with inflation and wage rises, more people are tipped into higher income tax bands.

For inheritance tax (IHT), it means every year more estates become liable to pay death duties.

Other areas where rates have been tweaked are changes to dividend taxes and capital gains tax.

Since the government has already fiddled with these, they might not be attractive options. Nonetheless, there are other potential sources.

Changing the rules around pensions tax relief is a long-mooted idea – either by equalising the relief to one rate, likely 30%, or doing away with the higher rate relief altogether.

Another, more unusual idea, floated in the Financial Times by Sushil Wadwhani – a former Bank of England Monetary Policy Committee (MPC) member – was taxing inflation by imposing a 100% tax on pay rises above 3%.

While this idea is somewhat fantastical, it illustrates that there are plenty of “innovative” ideas out there to find new ways of taxing wealth.

What can you do?

The Labour Party has been praised for ruling out new wealth taxes in a sign that it is willing to accept that some people have been able to accrue significant portfolios through hard work and over a long period of time.

The constant chopping and changing of tax rules and structures is also destabilising and creates ever more issues for families who are just trying to do the right thing.

It should also be caveated that these comments are by no means a guarantee, particularly as political and economic imperatives change frequently. The Labour Party is set to publish its manifesto ahead of the next general election, which must take place by December 2024. It is likely that we will find out more about potential plans then.

The best way to ensure that tax liabilities are managed carefully and effectively is to work with an adviser to ensure wealth growth is given the best opportunity to succeed and structured appropriately for your circumstances at all times, whatever the climate.

EU charity tax relief gift warning for estates

Leaving money to an EU-based charity will soon lose its tax-free status thanks to changes made to inheritance tax rules in March.

It is not uncommon for people to bequeath part of their wealth to charitable causes after they die. Up until this year such gifts have incurred no inheritance tax liabilities and are often seen as a positive way to give out wealth to those who might most need it.

Nevertheless, in the Government’s Budget in March, part of the fresh rules included a tweak to the relief on charitable gifts, which means that the tax relief would only be available to UK-based charities.

The change to the rules immediately impacted foreign charities. However, there is a transition period in place for EU-based charities until April 2024.

After that point any charity that is not based in the UK, including EU charities, will no longer be able to claim charitable tax relief on donations. Any estate bequeathing to a non-UK charity will lose the inheritance tax relief previously available.

How does charitable tax relief work?

Currently you can bequeath an unlimited amount of money to charity in your will and incur no inheritance tax (IHT) liabilities.

If you gift 10% or more of your estate to charity it reduces your IHT rate from a 40% charge on wealth over the nil rate band to 36%. It is one of many measures that are effective in reducing the overall potential IHT bill when you die.

With more estates moving into IHT liability, particularly with the bands frozen for more than a decade, this is no inconsiderable way to mitigate some of the potential liability.

What does the tax relief change mean?

Mitigating IHT through charitable donations is still a viable way of reducing your eventual IHT liability. However, the caveat is now that this will only apply to UK-based charitable donations from April 2024.

It is an incredibly tough decision to make, but if a non-UK charity is currently named as a beneficiary of your estate in your will, then this could have significant implications for the eventual tax bill to be paid by your estate.

If the charity you have in mind has UK-based entities, then ensuring you specify it will go to that branch will still be an effective strategy. However, outside of the UK, the same no longer applies.

This could also have an effect on British expats based in the EU with charitable giving in mind, as they could be caught out gifting to charities where they live abroad too.

If you have a nominated charity in your will that isn’t UK-based and would like to discuss your options, or for any other questions around inheritance tax planning and how charitable giving relief works, don’t hesitate to get in touch.

Bank of Mum and Dad: how to help your kids without compromising your plans

Nearly half (47%) of all property purchases in the UK will take place with the help from the so-called Bank of Mum and Dad (BOMAD) this year, according to new research.

The help from BOMAD will amount to around £8 billion according to the research from financial services provider Legal & General, towards the purchase of around 318,400 properties – a record level.

This is set to rise even more to £10 billion by 2025, says the firm. More than half of parents or grandparents (58%) help their family purchase a property do so for first-time buyers.

Bernie Hickman, CEO, Legal & General Retail says: “Family wealth is increasingly becoming a prerequisite for homeownership, effectively locking some groups out of the housing market for years while they save for deposits, or even altogether.

“While family gifting has always played a prominent role in the UK housing market, our study shows that the value of those contributions has risen by more than a quarter on pre- pandemic levels.”

Generational wealth planning

It is in many ways a positive that a family has worked hard enough to be able to help their loved ones buy their own home.

Getting on the property ladder is increasingly difficult with rising mortgage rates and historically high prices compared to wage levels. However, this can have implications for the parents or grandparents’ own financial plans.

Hickman explains: “An increasing reliance on family members isn’t only an issue for those seeking to buy – it is important to acknowledge the financial strain it can place on the giver, particularly if they are undertaking this commitment without financial advice. By dipping into savings and pensions, family members may be compromising on their own retirement incomes.”

So, what can you do to ensure help for your family, while not compromising your own plans? Having a generational wealth plan in place is key.

As a starting point, if you want to help with a home purchase, then planning for that as early as possible is essential. That money should be earmarked and in the right kind of account in order to minimise tax liabilities, particularly around pensions.

There are ways to contribute early on to your children or grandchildren’s financial future, such as setting up a junior ISA (JISA). However, the potential pitfall with a JISA is once the child turns 18, they gain full control of that pot. Although they might be financially responsible, not all 18-year-olds are, or they may have other priorities such as paying for university.

So, if you want to earmark that cash specifically for a house deposit, it might be wise to retain control of it yourself until the time comes.

It is also really important to consider inheritance tax (IHT) gifting rules. You can give as much as you like to a child, but under the seven-year rule, you’ll have to live for seven years past the gifting date for your estate to fully expunge any potential IHT liability for the gift.

Finally, as Hickman suggests, giving away a significant lump sum can have an impact on your own future financial stability and access to funds. In order to ensure the gift doesn’t have a detrimental effect, it is a good idea to go through the process of cashflow modelling.

Cashflow modelling can help you to decide where the best place is to draw the gift from, be it an ISA, pension, or even through selling other assets such as your property (if you’re planning on downsizing). Each option will have its benefits and drawbacks and should be discussed carefully with an adviser.

Top ways to ensure your pension is on the right path

For anyone with a retirement pot to look after it is important to be aware of what your pension is doing.

Pensions are an unfortunately complex retirement savings product, with a myriad of reliefs and tax rules around them which govern how much you can pay in, and what you can eventually take out. For that reason, it pays to ensure you’re keeping a close enough eye on your retirement funds to maximise the benefits of the pension and prevent any issues arising later in life.

Here are some key things to think about when it comes to your pension.

Are you contributing enough?

This is important for anyone saving into a pension, but the earlier you consider how much you’re saving into a pension the better. This is because the longer you leave more money to grow in a pension, the better the eventual outcome – i.e., how big your retirement fund – will be.

Final salary or ‘defined benefit’ (DB) pensions are on the way out. These were schemes in the past where workers paid in a nominal amount, but most of the liabilities for paying an income in retirement fell on either their employer, or in many cases for public sector workers, the government.

These days a defined contribution (DC) pension is much more likely to be what you’re saving into. What makes this different from DB is you only really get out what you put in to DC pensions. Employers are obliged to contribute a minimum of 3% to your workplace pension, with minimum personal contributions set at 5%. However, if you earn over £50,270 the contributions are capped to £183.46 per month. This isn’t a hard cap – you can increase your contributions – but you will have to actively ask your employer to increase them.

In terms of what is ‘enough’ this depends on what kind of lifestyle you would expect to maintain in later life and can be quite tricky to figure out. A common rule of thumb is that you would need to be able to give yourself an income worth around two thirds of what you earn today. This typically only factors in that you might have paid off your mortgage though, accounting for one third of your outgoings.

If you are unsure what sort of level you should be saving to, it is essential to speak to an adviser who can help you ascertain important aspects of planning for that retirement income.

Are you taking the right risk?

Contributions are one thing, but if a pot isn’t growing sufficiently over the long term, then this will greatly diminish the effectiveness of pension savings over a lifetime.

Another rule of thumb here is the younger you are, the more risk you should be taking. When you start a new workplace pension your money will be put in what is called the ‘default’ fund. These kinds of funds are routinely criticised for underperforming comparative funds elsewhere, and can leave retirees with disappointment come retirement.

Conversely, as you approach your chosen retirement age, it is a good idea to start considering derisking some of your portfolio. This is to preserve the value of the pot in long-term investment markets, and also to start adjusting some of your assets to focus on paying an income – which you will need in retirement.

How can I find missing pots?

With people regularly changing jobs over the years, it can be easier than you might assume to lose track of pension funds, particularly for older pots that don’t have digital accounts and might have been drawn up with simple paperwork.

This is also compounded by the financial services industry which is routinely changing company names or going through sales and mergers. The company who had your pot 10 year ago might be different today!

Fortunately, there are good ways to go about tracking down a missing pot. The government has a pension tracing service which should be your first port of call to track down an old pension. If this doesn’t bear fruit, then speaking to your old employer, then a financial adviser, could be good next steps as they will have more access to information about where the pension might have ended up.

Is it worth consolidating pots?

If you’ve found an old pot, or you’ve got small pots from old employers which you’re not contributing to, it could be worth considering consolidation of those pots. The main reasons why consolidation is beneficial is it makes it easier to manage the money in one place, and you could find somewhere better value, or with more options for your money to save.

There are a few drawbacks to pot consolidation that you should be aware of though. The first being that some pension pots, particularly older DB pots, come with specific arrangements, rules and bonuses that could be lost if you were to transfer the money out of that pot. If this could be the case for you, it is essential you speak to an adviser before taking any action.

Secondly, small pots do have some tax benefits, which can help toward certain goals when you retire. Once you reach pensions freedom age, pensions worth under £10,000 can be taken all in one go, with 25% tax free. You can do this with an unlimited number of workplace pensions, or with up to three personal pensions.

When can you access your retirement fund?

This comes down to the pension freedoms age mentioned above. This is currently set at 55 but will increase to 57 in 2028 to coincide with the rising state pension age.

It is ever more likely these days that you might be working well beyond the age of 57. If that is the case then it could be beneficial to draw upon other sources of wealth in your 50s and leave the pension untouched as long as possible, so you can continue to enjoy generous tax relief benefits from your salary.

An adviser can help you decide the best strategy for this and everything else mentioned previously in this article. Using tools such as cashflow modelling and by structuring growing wealth carefully, you will be able to maximise the benefit of a pension and minimise some of the potential pitfalls.

investment scam

£150k cryptocurrency fraud warning: key ways to protect your money from scams

Gloucestershire Police have issued a cryptocurrency scam warning after a victim was defrauded out of £150,000.

Staff at a bank in Cheltenham contacted police after a customer tried to transfer money to an account flagged as fraudulent. The customer, in their 60s, thought they were investing in a cryptocurrency scheme, but it was little more than a scam. The victim had been communicating with the scammers via WhatsApp.

Cryptocurrencies are generally unregulated financial assets that fall outside of the normal boundaries of financial markets. The best-known cryptocurrencies are infamous for their volatility and extraordinary price swings, while countless incidences of scams take place in so called “rug pulls” where someone touts the investment case of a particular token and encourages large numbers of investors to deposit money. Once the scammer has accrued enough money, they “pull the rug” and disappear with the funds, leaving investors with worthless digital tokens.


Spot the signs

Scammers are often highly sophisticated and use a web of digital tools to ensnare their victims. Fortunately, there are basic rules to have in your mind to protect yourself from fraud.

  1. Don’t give any heed to cold approaches. This could be via phone, email or any other communication platform such as social media. A random cold approach is a big red flag. Indeed, the Government is currently working to make all cold calling illegal.
  2. Beware too good to be true figures. A good signal that something could be a scam is a promise that is too good to be true. This includes guaranteeing a financial return on an investment, promising outlandishly high returns or any other hype around the future (and unknowable) performance of an asset. This is particularly common with cryptocurrencies.
  3. Verify their identities. If someone calls you claiming to be from a provider you use, such as your bank, pension provider or other firm, then thank them for contacting you but tell them you will get back in touch independently. Hang up the phone and find the contact number for the company and verify whether it really was them calling.
  4. Don’t get rushed. This is a classic tactic from scammers, they want to rush you into handing over information as quickly as possible because they don’t want you to stop and think whether this “product” they’re offering is actually real or if it is just a scam.
  5. Don’t trust websites you find on Google. Website cloning and URL spoofing is a rising problem. Although Google is the first port of call for finding a company’s website for many of us, scammers routinely buy advertising to appear at the top of results with cloned websites. Make sure the site you are clicking on doesn’t have odd spelling. Scammers will go as far as putting Cyrillic lettering in names to confuse search engines.
  6. Check the FCA register. As a rule, you should only ever engage with financial firms listed on the FCA register. This is perhaps the best way to ensure the legitimacy of a firm, and to find out contact information or website addresses. Although it’s not foolproof – firms get struck off the register for a variety of reasons – it is the best way to ensure the company you deal with is legitimate.
  7. Speak to an adviser. When making financial decisions around investing, it is really important to not just rely on your own gut feeling about an idea. Speaking to an adviser and getting the right help when making decisions can prevent disaster and will help you to make the best decisions possible in the circumstances.

Government weighs abolishing income tax benefit for inherited pensions

The Government could be set to scrap a valuable income tax benefit relating to the inheritance of pensions.

The tax perk allows someone under the age of 75 to bequeath an uncrystallised (i.e., still invested) defined contribution (DC) pension pot without any income tax liability when the beneficiary draws income from the pot. However, the proposal from HMRC recommends that from April, untouched pensions should no longer be exempt from income tax when inherited. This means anyone who inherits the pot would be liable to pay their marginal rate of income tax on whatever they draw down. The announcement follows a consultation around the tax treatment of inherited pensions and relates to wider reforms around the lifetime allowance (LTA).


How does this affect your wealth?

Pensions are one of the most efficient ways to plan for inheritance, thanks largely to the generous income tax benefit which could now be axed. The Government scrapped the pension LTA of £1,073,100 in April this year, making maximising pension tax benefits a much more attractive option for efficient tax and wealth planning. The removal of the LTA abolished 55% taxation on lump sums withdrawn over the LTA, plus a 25% charge on regular withdrawals.  However, the Labour Party has committed to reversing the change should it win the next General Election, which is currently pencilled in for December 2024, putting pension planning in doubt.

With house price growth over the past decade, many families that would never have expected to face an IHT bill are now being dragged into the frame for it. The latest figures from HMRC suggest an extra 50,000 families will be dragged into paying inheritance tax (IHT) by 2028. This is largely thanks to the ongoing frozen IHT threshold of £325,000 which has been in place over a decade, with an extra £175,000 allowance for main residence. Combined with a partner, the total tax-free allowance can be as much as £1 million.

Plans to abolish the pension inheritance income tax benefit have been recommended for April 2024, but are not set in stone as of yet and there has been no legislation forthcoming from the government. While it is important to be aware of the potential change, by no means should it totally change a wealth plan just yet. The benefit also only impacts the pension pot of someone who dies under the age of 75. It is important to consider factors such as life expectancy, health and lifestyle as this benefit might not ultimately be that relevant.

Overall, it is key to be aware of the potential benefits and pitfalls in wealth and retirement planning, and to prepare your portfolio for the best outcome possible, no matter the inclinations of the government of the day.

If you would like to discuss the pensions inheritance issue further or anything else relating to your wealth planning, don’t hesitate to get in touch.

What are the Mansion House pension reforms and will they affect your wealth?

Chancellor Jeremy Hunt announced pension reforms - dubbed the “Mansion House Reforms” - in early July.

According to the Treasury, the reforms are set to unlock an additional £75 billion in investment for high-growth British businesses by utilising the cash in the nation’s pension pots. How will this affect your pension on an individual level? This depends on how proactive you are with the management of your savings pots.


Mansion House Reforms in practice

The reforms announced by Hunt are looking to redirect money in UK pensions towards investments that might help to boost the economy. The UK has the largest pension market in Europe with around £2.5 trillion in assets. Through the reforms, the nine largest pension providers in the UK have agreed to increase investment in unlisted equities – i.e., companies not represented in the stock market – from around 1% of assets to 5%. The Government says this could potentially unlock around £50 billion in extra investment cash for fast-growing firms in the UK as a result.

Chancellor Hunt commented in the announcement: “British pensioners should benefit from British business success. By unlocking investment, we will boost retirement income by over £1,000 a year for typical earner over the course of their career.

“This also means more investment in our most promising companies, driving growth in the UK.” The reforms are backed by a wide range of businesses from JPMorgan to Octopus and the ScaleUp Institute.


How will my pension be affected?

The reforms are a potentially large shift in how investment capital in the UK, through pensions, is used. Major pension providers will look to tweak the allocations of their default investment funds to match the 5% unlisted equity threshold. However, it isn’t compulsory to have your pension pot invested in this way. The tricky thing here is your workplace pension might be one of the signatories to the scheme, and the choices beyond default fund might be limited. Members of the compact include: Aegon, Aviva, L&G, Mercer, M&G, Nest, Phoenix, Scottish Widows and Smart Pension. These default funds might not be the best place for your portfolio depending on your circumstances. It is really important to speak to an adviser to decide on the best course of action for any pension pot as this shift in investment and risk outlook can have significant implications.

Unlisted equities tend to be riskier than listed companies, which tend only to be on the stock market thanks to a proven track record. They are also less liquid which makes it harder for investment funds to sell assets if they require cash. If you are closer to retirement these kinds of investments might not be the right choice for you, especially if you are looking to protect your capital rather than going for growth.

Either way, get in touch to discuss your options.

What is sudden wealth? How to deal with an overnight windfall

Sudden wealth is a growing issue as older generations begin to pass on significant estates to their loved ones. The phrase “sudden wealth” is likely to conjure images of winning the lottery or inheriting a large sum from a mysterious great aunt.

However, more likely than not, it pertains to people whose parents have quietly squirreled away a nest egg through property, pensions and other assets over a lifetime. The crux is when these people pass away – they may have failed to put in place an inheritance plan, or even to properly explain to beneficiaries what the contents of a portfolio are and how much they’re worth. This can create huge issues for their beneficiaries as unmitigated tax liabilities can force people to sell assets they may not be prepared to deal with.

It can create other issues such as people becoming “accidental landlords” without really knowing what they’re taking on. There can also be issues where someone suddenly finds themselves with large sums in their bank accounts but has little idea of what the most responsible thing is to do with that money.

This is what makes intergenerational financial planning absolutely critical to protect those beneficiaries from a surprise inheritance.


Intergenerational financial planning

With older generations accruing larger amounts of wealth the potential for this wealth to pass on to their children - or even grandchildren - increases the risks associated with that wealth. It is therefore critical for a family to plan together for the outcomes of inheritance. A child is going to struggle if they inherit a substantial portfolio of assets from their parent with little clue of what those assets are, how they work and how to manage them. Dealing with an overnight windfall such as this can be emotionally extremely difficult and can lead to major mistakes that unravel years of sensible management.

While basic practices such as having a will in place are key, involving children in the decision-making process of how that estate planning is managed is really important, as is ensuring they understand what the assets are and how much they’re worth. How that wealth trickles down to younger generations will impact the tax that they pay, and how to structure that wealth over the long term. It can also colour decisions you make early in retirement in regard to which assets you draw upon to fund your retirement. For instance – gifting is an effective way to mitigate inheritance tax (IHT), but if your wealth is largely bound up in property this might not be the most effective way to pass on money – particularly if it leaves you cash poor.

Ensuring your loved ones fully understand your wealth portfolio will also prevent them from making mistakes once it passes to them. An adviser can help structure the process and talk to everyone involved in order to prepare them for what is to come. Intergenerational wealth planning takes care of the wider picture and how it can affect multiple generations, their future plans and their own wealth. It is an essential process for anyone with assets to pass on.


How to deal with sudden wealth

For those who have found themselves with a sudden windfall, be it through parents who didn’t communicate their plans, a lottery win, or a mysterious wealthy relative, the most important first step is to speak to a financial adviser.

An adviser will help you to understand the potential tax implications, the best way to structure what you have received in order to set it up successfully for life and mitigate any issues with your own wealth, and how to deal with the emotional implications of such a large windfall.

The temptation might be to go on a spending splurge. While buying that car you always wanted or taking the trip of a life time isn’t necessarily bad, it is essential to ensure that you can enjoy the fruits of some of that wealth while also making it work for you and last in the long term.

student loan changes

Should you pay your child’s student loans?

As the university year ends and a fresh crop of students graduate, should you look to help your child with their loans, or even the costs if they are yet to attend?

As a parent with young adult children, you’ll be acutely aware of how much it costs to go to university these days. Day-to-day living costs aside, the maximum fees for university now stand at £9,250 per year in England. This cost is compounded by interest rates, which have risen massively since the Bank of England began its rate hikes in December 2021. Those on Student Loan Plans 1 or 4 pay 5.5%, while Plan 2 and postgraduate loans pay an eye-watering 7.1% currently.

As a parent, if you have the means to help a child with the cost of tuition fees, you might wonder if it is a good idea to pitch in. However, there are some important aspects to consider before doing so, that will affect both your child and your wealth planning.

How student loans work

To get to grips with whether you should soften the blow of student loans for a child or grandchild, it is essential to understand how the system works. Student loans and student debt does not function like normal debt. It does not affect a student’s credit rating, other than for overall income considerations when applying for a mortgage. Payment for the loan is taken at source, meaning there’s no need to manage the loan like you would with a normal debt. In effect, student loans actually function as a form of income tax levy. Once someone earns above a certain threshold, the Government deducts a portion of their wages to pay back the loan.

Here are the various income thresholds depending on the plan the student is on:

Plan type Yearly threshold Monthly threshold Weekly threshold
Plan 1 £22,015 £1,834 £423
Plan 2 £27,295 £2,274 £524
Plan 4 £27,660 £2,305 £532
Plan 5 £25,000 £2,083 £480
Postgraduate Loan £21,000 £1,750 £403

Source: student loans repayment

As for how much you pay, this is calculated as 9% of your income over the threshold for plans 1, 2, 4 and 5. For postgraduate loans it’s 6%. This interest rate, in effect, is the additional income tax levy that the student with the loans takes, once they earn enough money. The debt is cancelled after either 25 years from the first April they were due to pay, or by age 65, depending on the plan. What is really critical here is that, because of the payment threshold and time limit on repaying, it doesn’t really matter how much debt the student has. They could have £30,000 or £3 million – they will only ever pay 6-9% of their income above the threshold of earnings. This is all entirely contingent then on what kind of career and income the student ends up having. Someone earning a lower level of income will pay less overall, whereas someone who goes on to earn a much higher income will pay much more of their loan back, or even all of it.

Other ways to help

The big question to ask yourself then is whether you want to help your child or grandchild avoid having to pay what is in effect an income tax levy on their earnings. Of course, if you do help this will aid their month-to-month earnings potential, but this is by no means a given depending on their career choices. There are other really valuable ways to help your child instead that could help them to achieve other goals such as owning a home. Contributing toward a house deposit could lower their mortgage costs and improve the options available to them in terms of property.

Other ways to help include gifting, which if done carefully following IHT rules, can be an effective way to help your child with ongoing living costs in small bitesize chunks. Putting money into a pension for your child can be a great long-term solution too, as this is often one of the most difficult things for a young person starting out in their career to appreciate the importance of.

Finally, if your kids are still younger and you’re just thinking about the future then contributing to a junior ISA can be a great way to set them up for success in young adulthood.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 18th July 2023.

The biggest mistakes to avoid when making out a will

Creating a will is a crucial part of a complete, long-term financial plan. Not having one can create major issues for your loved ones after you’re gone.

Of course, not having a will at all is the biggest mistake of the lot, but since you’re reading this article, we’ll assume you’ve made sure to get yours in order! Instead, we’re going to focus on major mistakes people can make when sorting theirs out.

Waiting too long to make one

You might be in the best shape of your life and not too worried about what happens to your estate when you’re gone. However, this is a big mistake. Like with anything in life we can never know what is around the corner. It’s uncommon but tragedies do happen, and when something happens to someone without a will, it just makes the situation worse for those left behind.

Waiting too long can also have implications when you’re older as unfortunately some people lose the capacity to make their own decisions. This can render a will redundant and can lead to familial disputes. Ensure yours is done when you’ve still got your wits about you.

Doing it DIY

Many people assume you can just write your wishes down on a piece of paper and sign it and, voila, you have a will. This is wrong. Wills should be arranged very carefully to meet legally binding criteria. This includes having non-related witnesses, naming executors, being unclear in explanations and other pitfalls that can lead to disputes.

It is essential to seek professional advice when formulating a will to avoid such issues arising.

Missing out assets

Another issue when creating a will is simply forgetting to add certain assets. Key things such as savings pots, your home and other significant assets will likely not go forgotten. However, what about that classic car in the garage, or the antique serving spoons you inherited from your grandmother? Everything needs to be accounted for, otherwise again this can lead to familial disputes.

In the modern age it is even worth having express wishes for what you would like to happen to things like social media accounts, computer files or other digital possessions. It might be more intangible, but it still matters.

Not updating

This is a huge mistake that can create major issues for your estate. Your will should be a living document, not just something you write once and stuff in a drawer (it should be somewhere under lock and key anyway!). If your financial situation or any other aspect of your wealth and possessions changes, then this needs to be accounted for in the will. In some cases, creating an amendment is sufficient, but if larger changes occur to your theoretical estate, then this can require a new draft entirely. It is important to consult with a professional either way to make sure.

Forgetting stepchildren

This is a quirky but very relevant problem in 2023. With modern blended families evermore common, if you’ve got stepchildren you need to specify them in the will, assuming you wish to leave them something. This is a curious problem in that you might just refer to all your kids as “my children” but in the complexities of legal interpretation, this can open up doubt about whether that just means your biological children.

It is better to expressly state “my children and stepchildren” where necessary to avoid all doubt.

Using the wrong witnesses

Witnessing the signing of the will is an essential part of what makes it valid. There are a few ways this can go wrong. The two witnesses must be over age 18. They must not be beneficiaries or married to someone who might be a beneficiary. They must not be related to you in anyway, either biologically or through your partner.

While some of these might seem like obvious errors, they happen all the time and lead to much worse outcomes for your estate. For even the most straightforward of wills it is important to consult with a professional who can guide you through the process to set you up for the best outcome possible.

Any opinions stated are honestly held but are not guaranteed and should not be relied upon.
The information contained in this document is not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell, any investments or products.
The content of this document is for information only. It is advisable that you discuss your personal financial circumstances with a financial adviser before undertaking any investments.
All the data contained in the communication is believed to be reliable but may be inaccurate or incomplete. Unless otherwise specified all information is produced as of 18th July 2023.