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Few people can truly prepare for the transition into retirement, no matter how well they plan for it. As life events go, retirement is perhaps the most significant; the end of working life and the beginning of a new chapter. For many, this is a time to pursue new interests, travel and spend valuable time with family. It is also an opportunity to consider gradually giving away your assets during your lifetime through a process called “giving while living”.

After decades of building up wealth, you may reach retirement with significant assets. If you have sought financial advice throughout your career, you will probably know the importance of ensuring you have enough wealth to maintain your standard of living throughout retirement. But it is also important to make crucial decisions about inheritance tax (IHT) and the sort of legacy you want to leave to your beneficiaries.

While you can pass as much as you like to your spouse tax-free, anything over the standard threshold of £325,000 will be taxed at 40% when passed to children, grandchildren or other beneficiaries. Whilst £325,000 may be significant on paper, once assets such as property are considered, the threshold can be used up very quickly. It’s because of these tax implications that you may want to think about giving financial gifts to children and grandchildren during your lifetime.


The first thing to remember is that HM Revenue & Customs allows you to give away £3,000 as gifts each tax year without them being added to the value of your estate.
More significantly, however, is that you can pass much larger amounts tax-free as long as you do it more than seven years before you die. This can be a useful strategy for two reasons. First, it potentially reduces the value of your estate for IHT purposes when you die. And second, it provides you with a greater degree of control or knowledge over where the money is going.

There are potential drawbacks, of course. If you have a large estate and you die less than seven years after giving away gifts of more than £325,000, then IHT will be due. The exact amount owed will depend on the timing of your gift. If you die less than three years after making a gift, 40% tax will be due. However, if you die three to seven years after making the gift, you will be taxed on a sliding scale known as ‘taper relief’. The amount owing will be between 32% and 8% and after seven years, the amount reduces to 0%.


Many people plan to leave all their assets to beneficiaries at death either out of choice or because they don’t believe they can afford to give it away during their lifetime. Choosing to give while living can be a difficult decision and the major barriers to it include concerns about maintaining a lifestyle in retirement or facing unexpected expenses, such as care fees.

The decision to give while living depends on several factors, such as the amount of wealth you have, your lifestyle in retirement, your children’s situations and any planning for long term health care etc. These factors can of course change throughout your retirement, so decisions around what you can afford to give need to be regularly reviewed. This is where a consistent dialogue with a trusted wealth advisor can help, using cashflow modelling of your investments and savings income, to develop a strategy that works for you and the reassurance that your plan is flexible enough to accommodate you, should events change.

Ultimately, giving while living offers benefits for everyone involved. It can be a powerful tool for reducing a potentially large IHT bill, while it may provide beneficiaries with a gift that helps them to get on the property ladder or make a start in their business careers. It also gives you something even more valuable – the gift of time: time to spend with family, time to educate your family on managing wealth, and time to oversee where your gift is going and how it is being used.

If you would like to discuss cashflow modelling or planning for your retirement, please get in touch using the CONTACT FORM HERE.

Disclaimer: The value of investments and any income from them can fall as well as rise and neither is guaranteed. Investors may not get back the capital they invested. Past performance is not indicative of future performance. The material is provided for informational purposes only. No news or research item is a personal recommendation to trade. Nothing contained herein constitutes investment, legal, tax or other advice.
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